TSX Symbol: WJX
TORONTO, Nov. 1, 2021 /CNW/ - Wajax Corporation
("Wajax" or the "Corporation") today announced its
2021 third quarter results.
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(Dollars in
millions, except per share data)
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Three Months
Ended
September 30
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Nine Months
Ended
September 30
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2021
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2020
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2021
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2020
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CONSOLIDATED
RESULTS
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Revenue
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$401.3
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$340.6
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$1,234.5
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$1,041.6
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Equipment
sales
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$104.7
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$106.2
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$364.5
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$326.4
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Product
support
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$114.3
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$100.9
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$334.8
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$309.8
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Industrial
parts
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$111.1
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$83.8
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$329.4
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$257.1
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ERS
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$62.1
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$41.7
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$179.8
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$123.8
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Equipment
rental
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$9.2
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$8.1
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$26.0
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$24.5
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Net
earnings
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$14.7
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$6.7
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$45.3
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$20.9
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Basic earnings per
share(1)
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$0.68
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$0.33
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$2.13
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$1.05
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Adjusted net
earnings(2)(3)
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$15.5
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$10.1
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$44.5
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$25.5
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Adjusted basic
earnings per share(1)(2)(3)
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$0.72
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$0.50
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$2.09
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$1.27
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Third Quarter Highlights
- Revenue in the third quarter of 2021 increased $60.7 million, or 17.8%, to $401.3 million, from $340.6 million in the third quarter of 2020.
Regionally:
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- Revenue in western Canada of
$177.4 million increased 36.9% over
the prior year due primarily to higher revenue in the industrial
parts and ERS categories, as well as higher mining and power
systems product support revenue. The increase in industrial parts
and ERS revenue was due mainly to the acquisition of Calgary, Alberta-based Tundra Process
Solutions Ltd. ("Tundra") effective January 22, 2021.
- Revenue in central Canada of
$74.2 million increased 0.6% over the
prior year primarily due to strength in industrial parts sales and
ERS revenue, as well as higher power systems and mining product
support revenue. These increases were offset partially by lower
construction and forestry equipment sales.
- Revenue in eastern Canada of
$149.7 million increased 9.0% over
the prior year primarily due to higher power systems equipment
sales, industrial parts revenue and construction and forestry
product support revenue.
- During the quarter, the Corporation did not recognize any
reimbursement of compensation expense from the Canada Emergency Wage Subsidy ("CEWS")
program. During the same quarter last year, the Corporation
qualified for the CEWS and recognized $5.4
million as a reimbursement of compensation expense with
$2.6 million and $2.8 million, respectively, allocated to cost of
sales and selling and administrative expenses in proportion to
personnel costs recorded in those areas.
- Gross profit margin of 21.2% in the third quarter of 2021
increased 2.4% compared to gross profit margin of 18.8% in the same
period of 2020. Excluding the CEWS recoveries in the third quarter
of last year of $2.6 million, gross
profit margin in the third quarter of 2021 increased 3.2% compared
to the gross profit margin of 18.0% in the same period of 2020. The
increase in margin was driven primarily by higher equipment and
parts margins, and a higher proportion of industrial parts and ERS
sales compared to equipment sales.
- Selling and administrative expenses as a percentage of revenue
increased to 15.1% in the third quarter of 2021 from 12.3% in the
third quarter of 2020. Excluding the CEWS recoveries in the third
quarter of last year of $2.8 million,
selling and administrative expenses as a percentage of revenue
increased from 13.1% in the third quarter last year to 15.1% in the
third quarter of 2021. Selling and administrative expenses in the
third quarter of 2021 increased $18.5
million compared to the third quarter of 2020 due mainly to
additional selling and administrative expenses related to Tundra,
higher personnel costs as the volume of business increased over the
prior year, amortization expense of $1.8
million relating to intangible assets recognized for the
Tundra acquisition, and the prior year $2.8
million recovery of personnel expenses from the CEWS program
without a similar recovery in the current year.
- EBIT increased $10.4 million, or
72.4%, to $24.7 million in the third
quarter of 2021 versus $14.3 million
in the same period of 2020.(2) The year-over-year
increase in EBIT is primarily attributable to higher volumes and
margins, a higher proportion of industrial parts and ERS sales
compared to equipment sales, and restructuring and other related
costs in the prior year of $7.7
million.(2) These increases were offset partially
by additional selling and administrative expenses related to
Tundra, higher personnel costs as the volume of business increased
over the prior year, and prior year recovery of personnel expenses
from the CEWS program without a similar recovery in the current
year.
- The Corporation generated net earnings of $14.7 million, or $0.68 per share, in the third quarter of 2021
versus $6.7 million, or $0.33 per share, in the same period of 2020. The
Corporation generated adjusted net earnings of $15.5 million, or $0.72 per share, in the third quarter of 2021
versus $10.1 million, or $0.50 per share, in the same period of
2020.(2)
- Adjusted EBITDA margin increased to 10.1% in the third quarter
of 2021 from 9.5% in the same period of 2020.(2)
- The Corporation's backlog at September
30, 2021 of $371.5 million
increased $54.7 million, or 17.3%,
compared to June 30, 2021 due to
higher orders in most categories, offset partially by lower ERS
orders.(2) Compared to September
30, 2020, backlog increased $166.4
million, or 81.2%, due to higher orders in the construction
and forestry, material handling, and power systems categories, and
higher orders in the industrial parts and ERS categories with the
addition of Tundra's backlog.(2)(4) These increases were
offset partially by lower mining orders.
- Total owned and net consignment inventory increased
$2.4 million in the third quarter of
2021. Owned inventory of $371.3
million at September 30, 2021
decreased $5.1 million from
June 30, 2021. Net consignment
inventory, comprised primarily of construction excavators,
increased by $7.5 million to
$27.0 million during the quarter.
- Working capital of $330.4 million
at September 30, 2021 decreased
$2.4 million from June 30, 2021, due primarily to lower
inventories, higher accounts payable, and lower deposits on
inventory, offset partially by higher trade and other receivables
and higher contract assets.(2) Trailing four-quarter
average working capital as a percentage of the trailing 12-month
sales was 21.7%, a decrease of 1.8% from June 30, 2021, due to the combination of the
lower four-quarter average working capital and the higher trailing
12-month sales.(2)
- Cash flows generated from operating activities amounted to
$40.2 million in the third quarter of
2021, compared to cash flows generated from operating activities of
$34.8 million in the same quarter of
the previous year. The increase in cash generated from operating
activities of $5.4 million was mainly
attributable to an increase in net earnings excluding items not
affecting cash flow of $15.8 million,
offset partially by a decrease in cash generated from changes in
non-cash operating working capital of $7.5
million and an increase in income taxes paid of $3.0 million.
- The Corporation's leverage ratio decreased to 1.39 times at
September 30, 2021, compared to 1.73
times at June 30, 2021.(2)
The decrease in the leverage ratio was due primarily to the lower
debt level in the current period.(2) The Corporation's
senior secured leverage ratio was 0.95 times at September 30, 2021, compared to 1.28 times at
June 30, 2021.(2)
- During the third quarter of 2021, the Corporation entered into
sale and leaseback transactions for two of its owned properties.
The proceeds net of transaction costs on the sale of the properties
was $5.3 million, and the carrying
amount was $0.6 million, resulting in
a total gain on sale of the properties of $4.7 million, of which $0.1 million was recognized in the quarter and
the remaining $4.6 million was
deferred as a reduction of the right-of-use assets.
- On August 19, 2021, Wajax and
Hitachi Construction Machinery Loaders America Inc.
("Hitachi") announced that, effective March 1, 2022, the companies plan to expand their
current Canadian direct distribution relationship to include
construction excavators, mining equipment and related aftermarket
parts. Since 2001, these products have been supplied to Wajax via a
third-party joint venture partner to Hitachi Construction Machinery
("HCM"). It was announced by HCM and its partner earlier on
August 19, 2021, that such joint
venture would be dissolved, with an expected dissolution date of
February 28, 2022.
This change is expected to provide Wajax with enhanced access to
product development, increased market responsiveness and improved
reliability of equipment supply. It is also expected to increase
Wajax and Hitachi market share by providing customers with better
access to products which lead the market in terms of value,
performance and reliability.
Wajax and Hitachi will continue to work closely on transition
planning leading up to March 1, 2022,
and continue to expect significant long-term benefits from the
expanded relationship. For more information, please see the
Corporation's press release dated August 19,
2021.
- The consignment program of HCM's joint venture partner,
relating to construction-class excavators, ended October 31, 2021. Effective November 1, 2021, the Corporation began assuming
ownership of new stock received. Inventory on hand as at
October 31, 2021 will remain subject
to the prior consignment terms, which include the opportunity for
the Corporation to purchase the inventory prior to sale to a
customer. Due to certain preferential terms being offered by the
supplier, the Corporation plans to purchase all consignment
inventory on hand as at October 31,
2021 during the fourth quarter of 2021. For inventory
received from the supplier during the period from November 1, 2021 to February 28, 2022, extended payment terms will
apply. Effective March 1, 2022, new
payment terms from the manufacturer are expected to apply. The
Corporation's existing credit facilities are expected to continue
to be sufficient to support total normal course working capital
requirements, including the effect of this change.
- On October 5, 2021, the
Corporation announced that Mark
Foote will retire as President and Chief Executive Officer
on December 31, 2021. Ignacy (Iggy) Domagalski, the Chief Executive
Officer of Tundra, which was acquired by Wajax effective
January 22, 2021, will be appointed
President and Chief Executive Officer of Wajax upon Mr. Foote's
retirement.
Wajax also today announced the appointment of Jane Craighead to its Board of Directors,
effective immediately. Ms. Craighead is a corporate director
currently serving on the boards of Jarislowsky Fraser Limited,
Intertape Polymer Group Inc. and Crombie REIT. She also serves on
the board of the McGill University
Health Centre Foundation and is a Member of the Board of Regents of
Mount Allison University. Ms. Craighead
has many years of strategic human resources experience and was
previously Senior Vice President, Global Human Resources at the
Bank of Nova Scotia. Prior to
that, she was the Global Practice Leader, Rewards at Rio Tinto Plc,
and the Eastern Canada Human Capital Advisory Services Business
Leader at Mercer Human Resources Consulting. Ms. Craighead holds a
Ph.D. in Management and a Graduate Diploma in Accounting from
McGill University, a Bachelor of
Commerce degree (with distinction) from Mount
Allison University and is a Chartered Professional
Accountant.
"We are very pleased to welcome Ms. Craighead as a director,"
said Rob Dexter, Chairman of Wajax's
Board of Directors. "We expect her in-depth expertise in strategic
human resources, including change management, transformation and
total rewards, to contribute significantly as Wajax continues on
its path to becoming Canada's
leading industrial products and services provider." In addition to
her appointment as a director, Ms. Craighead was also appointed a
member of the Audit Committee and the Human Resources and
Compensation Committee of the Board of Directors.
On November 1, 2021, the Corporation declared a dividend of
$0.25 per share for the fourth
quarter of 2021 payable on January 5, 2022 to shareholders of
record on December 15, 2021.
President and Chief Executive Officer Mark Foote stated, "In 2021, Wajax has been
focused on protecting the health, safety and well-being of its
team, providing excellent customer service, protecting the
Corporation's financial health and driving its long-term growth
strategy."
Commenting on financial expectations for 2021, Mr. Foote stated,
"We expect revenue associated with the acquisition of Tundra to be
a significant contributor to total revenue growth in 2021. To the
end of the third quarter, general market conditions affecting
organic growth have been better than the Corporation's
expectations, resulting in improved revenue and margin rates. Wajax
will continue to work closely with major suppliers in relation to
inventory availability and supply chain service levels. Current
challenges with equipment inventory availability in construction
and forestry, material handling and power systems are expected to
persist into the fourth quarter."
As to Wajax's key product and service categories, Mr. Foote
commented, "Notwithstanding temporary supply chain issues in the
Corporation's heavy equipment categories, we will continue to focus
on success in construction and forestry, mining, material handling
and power systems, including improvements in product support
volumes. Wajax has excellent growth opportunities in these
categories and will continue to work closely with its supplier
partners to prudently grow market share and capture aftermarket
sales. In the mining category, we continue to experience strong
customer quoting activity.
In industrial parts and ERS, we expect strong growth, including
the contribution from Tundra. ERS continues to be one of Wajax's
most significant opportunities, capable of growth at each point in
the economic cycle."
Regarding other key projects, Mr. Foote stated, "Wajax's
infrastructure programs have continued in 2021, including branch
network consolidation and technology investments. Following a
COVID-19 related delay in 2020, the phased implementation of our
new ERP system began in the second quarter of 2021. Full
implementation is expected to occur over an approximate 24-month
period to reduce associated risks."
Mr. Foote concluded, "On behalf of the leadership team, I would
like to thank our employees for their resilience, hard work and
significant effort in serving our customers as volumes have
increased. We appreciate everyone's efforts to work safely and to
focus on our first priority which is to protect the health, safety
and well-being of our employees."
Wajax Corporation
Founded in 1858, Wajax (TSX: WJX) is one of Canada's longest-standing and most diversified
industrial products and services providers. The Corporation
operates an integrated distribution system providing sales, parts
and services to a broad range of customers in diverse sectors of
the Canadian economy, including: construction, forestry, mining,
industrial and commercial, oil sands, transportation, metal
processing, government and utilities, and oil and gas.
The Corporation's goal is to be Canada's leading industrial products and
services provider, distinguished through its three core
capabilities: sales force excellence, the breadth and efficiency of
repair and maintenance operations, and the ability to work closely
with existing and new vendor partners to constantly expand its
product offering to customers. The Corporation believes that
achieving excellence in these three areas will position it to
create value for its customers, employees, vendors and
shareholders.
Wajax will webcast its Third Quarter Financial Results
Conference Call. You are invited to listen to the live webcast on
Tuesday, November 2, 2021 at
2:00 p.m. ET. To access the webcast,
please visit our website wajax.com, under "Investor
Relations", "Events and Presentations", "Q3 2021
Financial Results" and click on the "Webcast" link.
Notes:
(1)
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Weighted average
shares, net of shares held in trust, outstanding for calculation of
basic and diluted earnings per share for the three months ended
September 30, 2021 was 21,409,323 (2020 – 20,033,619) and
22,075,170 (2020 – 20,513,331), respectively.
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Weighted average
shares, net of shares held in trust, outstanding for calculation of
basic and diluted earnings per share for the nine months ended
September 30, 2021 was 21,300,718 (2020 – 20,027,910) and
21,937,073 (2020 – 20,459,861), respectively.
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(2)
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"Adjusted net
earnings", "Adjusted basic earnings per share", "Adjusted EBITDA",
"Adjusted EBITDA margin", "pro-forma adjusted EBITDA", "backlog",
"leverage ratio" and "senior secured leverage ratio" do not have
standardized meanings prescribed by generally accepted accounting
principles ("GAAP"). "EBIT" and "Working capital" are
additional GAAP measures. See the Non-GAAP and Additional GAAP
Measures section of the Q3 2021 Management's Discussion and
Analysis.
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(3)
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Net earnings
excluding the following:
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a.
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after-tax gain
recorded on the sale of properties of $0.1 million (2020 - gain of
$1.2 million), or basic and diluted earnings per share of less than
$0.01 (2020 - $0.06 earnings per share) for the three months ended
September 30, 2021.
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b.
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after-tax gain
recorded on the sale of properties of $0.8 million (2020 - gain of
$1.2 million), or basic and diluted earnings per share of $0.04
(2020 - $0.06 earnings per share) for the nine months ended
September 30, 2021.
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c.
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after-tax non-cash
losses on mark to market of derivative instruments of $0.9 million
(2020 – gains of $1.0 million), or basic and diluted loss per share
of $0.04 (2020 – $0.05 earnings per share) for the three months
ended September 30, 2021.
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d.
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after-tax non-cash
gains on mark to market of derivative instruments of $0.2 million
(2020 – gains of $0.2 million), or basic and diluted earnings per
share of $0.01 (2020 – $0.01 earnings per share) for the nine
months ended September 30, 2021.
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e.
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after-tax Tundra
transaction costs of $0.3 million (2020 - nil), or basic and
diluted earnings per share of $0.01 (2020 - nil) for the nine
months ended September 30, 2021.
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f.
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after-tax
restructuring and other related costs of nil (2020 – $5.6 million),
or basic and diluted earnings per share of nil (2020 – $0.28 and
$0.27 respectively) for the three months ended September 30,
2021.
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g.
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after-tax
restructuring and other related costs of nil (2020 – $5.7 million),
or basic and diluted earnings per share of nil (2020 –$0.28) for
the nine months ended September 30, 2021.
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h.
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after-tax NorthPoint
Technical Services ULC ("NorthPoint") transaction costs of
nil (2020 - $0.2 million), or basic and diluted earnings per share
of nil (2020 - $0.01) for the nine months ended September 30,
2021.
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(4)
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The Corporation's
backlog as at September 30, 2021 now includes customer purchase
commitments for Groupe Delom Inc. ("Delom"), NorthPoint and
Tundra, and therefore for comparability purposes customer purchase
commitments for Delom and NorthPoint have been added to backlog as
at September 30, 2020.
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Cautionary Statement Regarding Forward-Looking
Information
This news release contains certain forward-looking statements
and forward-looking information, as defined in applicable
securities laws (collectively, "forward-looking
statements"). These forward-looking statements relate to future
events or the Corporation's future performance. All statements
other than statements of historical fact are forward-looking
statements. Often, but not always, forward looking statements can
be identified by the use of words such as "plans", "anticipates",
"intends", "predicts", "expects", "is expected", "scheduled",
"believes", "estimates", "projects" or "forecasts", or variations
of, or the negatives of, such words and phrases or state that
certain actions, events or results "may", "could", "would",
"should", "might" or "will" be taken, occur or be achieved.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors beyond the Corporation's ability to
predict or control which may cause actual results, performance and
achievements to differ materially from those anticipated or implied
in such forward-looking statements. To the extent any
forward-looking information in this news release constitutes
future-oriented financial information or financial outlook within
the meaning of applicable securities law, such information is being
provided to demonstrate the potential of the Corporation and
readers are cautioned that this information may not be appropriate
for any other purpose. There can be no assurance that any
forward-looking statement will materialize. Accordingly, readers
should not place undue reliance on forward-looking statements. The
forward-looking statements in this news release are made as of the
date of this news release, reflect management's current beliefs and
are based on information currently available to management.
Although management believes that the expectations represented in
such forward-looking statements are reasonable, there is no
assurance that such expectations will prove to be correct.
Specifically, this news release includes forward looking statements
regarding, among other things, the planned expansion of our
Canadian direct distribution relationship with Hitachi effective
March 1, 2022, as well as the
expected benefits of such expanded relationship, including enhanced
access to product development, increased market responsiveness,
improved reliability of equipment supply and increased market
share; our intention to continue working with Hitachi on transition
planning for our expanded direct distribution relationship, and our
mutual continued expectation of significant long-term benefits from
such relationship; the end of a consignment program relating to
construction-class excavators received from HCM's joint venture
partner, including our plans to purchase all consignment inventory
on hand during the fourth quarter of 2021, our expectation that new
credit terms from the manufacturer will apply effective
March 1, 2022 and our expectation
that our existing credit facilities will be sufficient to support
normal course working capital requirements, including the effect of
these changes; our expectation that revenue associated with the
acquisition of Tundra will be a significant contributor to our
total revenue growth in 2021; our continued intention to work
closely with our major suppliers in relation to inventory
availability and supply chain service levels; our expectation that
current challenges with the availability of construction and
forestry, material handling and power systems equipment inventory
will persist into the fourth quarter; our plans to continue our
focus on success in construction and forestry, mining, material
handling and power systems, including improvements in product
support volumes; our belief that we have excellent growth
opportunities in the aforementioned heavy equipment categories and
our intention to continue to work closely with our supplier
partners to prudently grow market share and capture aftermarket
sales; our expectation that our industrial parts and ERS categories
will yield strong growth, including the contribution of Tundra, and
that ERS continues to be one of Wajax's most significant
opportunities, capable of growth at each point in the economic
cycle; our plan to minimize the implementation risks associated
with our new ERP system by conducting such implementation over a
24-month period; our goal of becoming Canada's leading industrial products and
services provider, distinguished through our core capabilities; and
our belief that achieving excellence in our areas of core
capability will position Wajax to create value for its customers,
employees, vendors and shareholders. These statements are based on
a number of assumptions which may prove to be incorrect, including,
but not limited to, our ability to successfully manage our business
through the COVID-19 pandemic and actions taken by governments,
public authorities, suppliers and customers in response to the
novel coronavirus and its variants; the ability of HCM and its
partner to dissolve their joint venture arrangements, including
their ability to complete the steps necessary for such dissolution
in a timely manner or at all, and to obtain any required approvals
for, or consents to, such dissolution; the ability of Hitachi and
Wajax to develop and execute successful sales, marketing and other
plans related to their expanded direct distribution relationship;
general business and economic conditions; the supply and demand
for, and the level and volatility of prices for, oil, natural gas
and other commodities; financial market conditions, including
interest rates; our ability to execute our updated Strategic Plan,
including our ability to develop our core capabilities, execute on
our organic growth priorities, complete and effectively integrate
acquisitions, such as Tundra, and to successfully implement new
information technology platforms, systems and software, such as our
new ERP system; the future financial performance of the
Corporation; our costs; market competition; our ability to attract
and retain skilled staff; our ability to procure quality products
and inventory; and our ongoing relations with suppliers, employees
and customers. The foregoing list of assumptions is not exhaustive.
Factors that may cause actual results to vary materially include,
but are not limited to, the geographic spread and ultimate impact
of the COVID-19 virus and its variants, and the duration of the
coronavirus pandemic; the duration and severity of travel, business
and other restrictions imposed by governments and public
authorities in response to COVID-19, as well as other measures that
may be taken by such authorities; actions taken by our suppliers
and customers in relation to the COVID-19 pandemic, including
slowing, reducing or halting operations; the inability of HCM and
its partner to dissolve their joint venture arrangements
satisfactorily, including their inability to complete the steps
necessary for such dissolution in a timely manner or at all, or the
failure to obtain any required approvals for, or consents to, such
dissolution on acceptable terms; the ability of Hitachi and Wajax
to develop and execute successful sales, marketing and other plans
related to their expanded direct distribution relationship; a
continued or prolonged deterioration in general business and
economic conditions (including as a result of the COVID-19
pandemic); volatility in the supply and demand for, and the level
of prices for, oil, natural gas and other commodities; a continued
or prolonged decrease in the price of oil or natural gas;
fluctuations in financial market conditions, including interest
rates; the level of demand for, and prices of, the products and
services we offer; levels of customer confidence and spending;
market acceptance of the products we offer; termination of
distribution or original equipment manufacturer agreements;
unanticipated operational difficulties (including failure of plant,
equipment or processes to operate in accordance with specifications
or expectations, cost escalation, our inability to reduce costs in
response to slow-downs in market activity, unavailability of
quality products or inventory, supply disruptions (including
disruptions caused by the COVID-19 pandemic), job action and
unanticipated events related to health, safety and environmental
matters); our ability to attract and retain skilled staff and our
ability to maintain our relationships with suppliers, employees and
customers. The foregoing list of factors is not exhaustive. Further
information concerning the risks and uncertainties associated with
these forward-looking statements and the Corporation's business may
be found in our Annual Information Form for the year ended
December 31, 2020 (the "AIF"),
in our annual MD&A for financial risks, and in our most recent
quarterly MD&A, all of which have been filed on SEDAR. The
forward-looking statements contained in this news release are
expressly qualified in their entirety by this cautionary statement.
The Corporation does not undertake any obligation to publicly
update such forward-looking statements to reflect new information,
subsequent events or otherwise unless so required by applicable
securities laws.
Readers are cautioned that the risks described in the AIF, and
in our annual and quarterly MD&A, are not the only risks that
could impact the Corporation. We cannot accurately predict the full
impact that COVID-19 will have on our business, results of
operations, financial condition or the demand for our products and
services due to the uncertainties related to the spread of the
virus and its variants. Risks and uncertainties not currently known
to the Corporation, or currently deemed to be immaterial, may have
a material effect on the Corporation's business, financial
condition or results of operations.
Additional information, including Wajax's Annual Report, is
available on SEDAR at www.sedar.com.
Wajax Corporation
Management's Discussion and
Analysis – Q3 2021
The following management's discussion
and analysis ("MD&A") discusses the consolidated
financial condition and results of operations of Wajax Corporation
("Wajax" or the "Corporation") for the quarter ended
September 30, 2021. This MD&A
should be read in conjunction with the information contained in the
unaudited condensed consolidated interim financial statements and
accompanying notes for the quarter ended September 30, 2021, the annual audited
consolidated financial statements and accompanying notes for the
year ended December 31, 2020 that are
prepared in accordance with International Financial Reporting
Standards ("IFRS") and the associated MD&A. Information
contained in this MD&A is based on information available to
management as of November 1, 2021.
Management is responsible for the information disclosed in this
MD&A and the unaudited condensed consolidated interim financial
statements and accompanying notes, and has in place appropriate
information systems, procedures and controls to ensure that
information used internally by management and disclosed externally
is materially complete and reliable. Wajax's Board of Directors has
approved this MD&A and the unaudited condensed consolidated
interim financial statements and accompanying notes. In addition,
Wajax's Audit Committee, on behalf of the Board of Directors,
provides an oversight role with respect to all public financial
disclosures made by Wajax and has reviewed this MD&A and the
unaudited condensed consolidated interim financial statements and
accompanying notes.
Unless otherwise indicated, all financial information within
this MD&A is in millions of Canadian dollars, except ratio
calculations, share, share rights and per share data. Additional
information, including Wajax's Annual Report and Annual Information
Form, are available on SEDAR at www.sedar.com.
Wajax Corporation Overview
Founded in 1858, Wajax
(TSX: WJX) is one of Canada's
longest-standing and most diversified industrial products and
services providers. The Corporation operates an integrated
distribution system, providing sales, parts and services to a broad
range of customers in diverse sectors of the Canadian economy,
including: construction, forestry, mining, industrial and
commercial, oil sands, transportation, metal processing, government
and utilities, and oil and gas.
Strategic Direction and Outlook
The goal of the One
Wajax strategy is to provide customers with access to the
Corporation's full range of products and services while delivering
a consistently excellent level of customer service. Wajax is
focused on delivering a strong experience for its customers and
employees through the execution of clear plans in five key
areas:
- Investing in the Wajax team - The safety, well-being and
engagement of the Corporation's team of approximately 2,690
employees is the foundation of the Corporation.
- Investing in Wajax customers - The Corporation has the
privilege of supporting 32,000 individual customers across
Canada ranging from small local
contractors to the country's largest industrial and resource
organizations.
- Executing a clear organic growth strategy - The Corporation has
organic growth opportunities in each of its Heavy Equipment and
Industrial Parts and Services categories. Heavy Equipment
categories include construction and forestry, mining, material
handling and power systems which collectively serve a broad range
of customer capital equipment and related product support needs.
Industrial Parts and Services categories include industrial parts
and Engineered Repair Services ("ERS") which collectively
serve a broad range of customer fixed plant maintenance, repair and
reliability needs.
- Accretive acquisitions strategy - Acquisitions are an important
aspect of the Corporation's growth strategy. Primarily, the
Corporation focuses on acquisitions that add to the breadth and
scale of Industrial Parts and Services. Wajax's national
infrastructure and extensive customer relationships position the
Corporation as an aggregator in the highly fragmented ERS and
related Industrial Parts market. Secondarily, the Corporation
considers acquisitions in Heavy Equipment categories where
extensions to existing major distribution relationships are
enhanced.
- Investing in the Wajax infrastructure - The Corporation invests
in its infrastructure to improve the consistency of customer
service and lower costs. The Corporation's current programs include
the ongoing consolidation of its branch network, investing in new
information systems and implementing Customer Support Centres (each
a "CSC") that provide 24/7 customer support in all product
and service categories.
In addition to the above and to meet the Corporation's long-term
sustainability goals, the Corporation has introduced a more
comprehensive sustainability program as outlined below and further
discussed in the Corporation's 2020 Annual
Report:
Sustainability Roadmap
Areas
|
Goals
|
|
|
Employee Health,
Safety and Wellness
|
Provide every
employee with a healthy and safe working environment that supports
their entire well-being: physical, psychological and
financial.
|
|
|
Training and
Development
|
Attract, engage,
train, develop and retain the best people across all levels of the
organization from entry level positions to senior
leadership.
|
|
|
Diversity and Equal
Opportunity
|
Attract, retain and
develop a diverse and skilled workforce that best reflects Canadian
society, and provide a work environment that values and utilizes
the contributions of employees' diverse backgrounds, experiences
and perspectives.
|
|
|
Sustainable
Products
and
Services
|
Commit to a
continuous process of understanding customer needs and leveraging
technology, Wajax expertise and vendor partnerships to deliver
sustainable solutions that reduce energy consumption, improve
safety and reduce waste.
|
|
|
Environmental
Responsibility
|
Ensure operations are
managed to minimize their impact on the environment, focusing on
initiatives that lower energy intensity and reduce
waste.
|
|
|
Governance
|
Maintain a reputation
for fair dealing and integrity and demonstrate ongoing commitment
to upholding high ethical standards in the conduct of the
Corporation's business.
|
|
|
Community
|
Invest in and
contribute to the communities that the Corporation operates in
across the country through a combination of volunteer hours,
fundraising, and in-kind donations.
|
Outlook
In 2021, Wajax has been focused on protecting
the health, safety and well-being of its team, providing excellent
customer service, protecting the Corporation's financial health and
driving its long-term growth strategy.
The Corporation expects revenue associated with the acquisition
of Tundra Process Solutions Ltd. ("Tundra") to be a
significant contributor to total revenue growth in 2021. To the end
of the third quarter, general market conditions affecting organic
growth have been better than the Corporation's expectations,
resulting in improved revenue and margin rates. Wajax will continue
to work closely with major suppliers in relation to inventory
availability and supply chain service levels. Current challenges
with equipment inventory availability in construction and forestry,
material handling and power systems are expected to persist into
the fourth quarter.
Notwithstanding temporary supply chain issues in the
Corporation's heavy equipment categories, Wajax will continue to
focus on success in construction and forestry, mining, material
handling and power systems, including improvements in product
support volumes. Wajax has excellent growth opportunities in these
categories and will continue to work closely with its supplier
partners to prudently grow market share and capture aftermarket
sales. In the mining category, the Corporation has continued to
experience strong customer quoting activity.
In industrial parts and ERS, Wajax expects strong growth,
including the contribution from Tundra. ERS continues to be one of
the Corporation's most significant opportunities, capable of growth
at each point in the economic cycle.
The Corporation's infrastructure programs have continued in
2021, including branch network consolidation and technology
investments. Following a COVID-19 related delay in 2020, the phased
implementation of the Corporation's new ERP system began in the
second quarter of 2021. Full implementation is expected to occur
over an approximate 24-month period to reduce associated risks.
See the Cautionary Statement Regarding Forward-Looking
Information section.
Highlights for the Quarter
- Revenue in the third quarter of 2021 increased $60.7 million, or 17.8%, to $401.3 million, from $340.6 million in the third quarter of 2020.
Regionally:
-
- Revenue in western Canada of
$177.4 million increased 36.9% over
the prior year due primarily to higher revenue in the industrial
parts and ERS categories, as well as higher mining and power
systems product support revenue. The increase in industrial parts
and ERS revenue was due mainly to the acquisition of Calgary, Alberta-based Tundra effective
January 22, 2021.
- Revenue in central Canada of
$74.2 million increased 0.6% over the
prior year primarily due to strength in industrial parts sales and
ERS revenue, as well as higher power systems and mining product
support revenue. These increases were offset partially by lower
construction and forestry equipment sales.
- Revenue in eastern Canada of
$149.7 million increased 9.0% over
the prior year primarily due to higher power systems equipment
sales, industrial parts revenue and construction and forestry
product support revenue.
- During the quarter, the Corporation did not recognize any
reimbursement of compensation expense from the Canada Emergency Wage Subsidy ("CEWS")
program. During the same quarter last year, the Corporation
qualified for the CEWS and recognized $5.4
million as a reimbursement of compensation expense with
$2.6 million and $2.8 million, respectively, allocated to cost of
sales and selling and administrative expenses in proportion to
personnel costs recorded in those areas.
- Gross profit margin of 21.2% in the third quarter of 2021
increased 2.4% compared to gross profit margin of 18.8% in the same
period of 2020. Excluding the CEWS recoveries in the third quarter
of last year of $2.6 million, gross
profit margin in the third quarter of 2021 increased 3.2% compared
to the gross profit margin of 18.0% in the same period of 2020. The
increase in margin was driven primarily by higher equipment and
parts margins, and a higher proportion of industrial parts and ERS
sales compared to equipment sales.
- Selling and administrative expenses as a percentage of revenue
increased to 15.1% in the third quarter of 2021 from 12.3% in the
third quarter of 2020. Excluding the CEWS recoveries in the third
quarter of last year of $2.8 million,
selling and administrative expenses as a percentage of revenue
increased from 13.1% in the third quarter last year to 15.1% in the
third quarter of 2021. Selling and administrative expenses in the
third quarter of 2021 increased $18.5
million compared to the third quarter of 2020 due mainly to
additional selling and administrative expenses related to Tundra,
higher personnel costs as the volume of business increased over the
prior year, amortization expense of $1.8
million relating to intangible assets recognized for the
Tundra acquisition, and the prior year $2.8
million recovery of personnel expenses from the CEWS program
without a similar recovery in the current year.
- EBIT increased $10.4 million, or
72.4%, to $24.7 million in the third
quarter of 2021 versus $14.3 million
in the same period of 2020.(1) The year-over-year
increase in EBIT is primarily attributable to higher volumes and
margins, a higher proportion of industrial parts and ERS sales
compared to equipment sales, and restructuring and other related
costs in the prior year of $7.7
million. These increases were offset partially by additional
selling and administrative expenses related to Tundra, higher
personnel costs as the volume of business increased over the prior
year, and prior year recovery of personnel expenses from the CEWS
program without a similar recovery in the current year.
- The Corporation generated net earnings of $14.7 million, or $0.68 per share, in the third quarter of 2021
versus $6.7 million, or $0.33 per share, in the same period of 2020. The
Corporation generated adjusted net earnings of $15.5 million, or $0.72 per share, in the third quarter of 2021
versus $10.1 million, or $0.50 per share, in the same period of
2020.(1)
- Adjusted EBITDA margin increased to 10.1% in the third quarter
of 2021 from 9.5% in the same period of 2020.(1)
- The Corporation's backlog at September
30, 2021 of $371.5 million
increased $54.7 million, or 17.3%,
compared to June 30, 2021 due to
higher orders in most categories, offset partially by lower ERS
orders.(1) Compared to September
30, 2020, backlog increased $166.4
million, or 81.2%, due to higher orders in the construction
and forestry, material handling, and power systems categories, and
higher orders in the industrial parts and ERS categories with the
addition of Tundra's backlog.(1)(2) These increases were
offset partially by lower mining orders.
- Total owned and net consignment inventory increased
$2.4 million in the third quarter of
2021. Owned inventory of $371.3
million at September 30, 2021
decreased $5.1 million from
June 30, 2021. Net consignment
inventory, comprised primarily of construction excavators,
increased by $7.5 million to
$27.0 million during the quarter.
- Working capital of $330.4 million
at September 30, 2021 decreased
$2.4 million from June 30, 2021, due primarily to lower
inventories, higher accounts payable, and lower deposits on
inventory, offset partially by higher trade and other receivables
and higher contract assets.(1) Trailing four-quarter
average working capital as a percentage of the trailing 12-month
sales was 21.7%, a decrease of 1.8% from June 30, 2021, due to the combination of the
lower four-quarter average working capital and the higher trailing
12-month sales.(1)
- Cash flows generated from operating activities amounted to
$40.2 million in the third quarter of
2021, compared to cash flows generated from operating activities of
$34.8 million in the same quarter of
the previous year. The increase in cash generated from operating
activities of $5.4 million was mainly
attributable to an increase in net earnings excluding items not
affecting cash flow of $15.8 million,
offset partially by a decrease in cash generated from changes in
non-cash operating working capital of $7.5
million and an increase in income taxes paid of $3.0 million.
- The Corporation's leverage ratio decreased to 1.39 times at
September 30, 2021, compared to 1.73
times at June 30, 2021.(1)
The decrease in the leverage ratio was due primarily to the lower
debt level in the current period.(1) The Corporation's
senior secured leverage ratio was 0.95 times at September 30, 2021, compared to 1.28 times at
June 30, 2021.(1)
- During the third quarter of 2021, the Corporation entered into
sale and leaseback transactions for two of its owned properties.
The proceeds net of transaction costs on the sale of the properties
was $5.3 million, and the carrying
amount was $0.6 million, resulting in
a total gain on sale of the properties of $4.7 million, of which $0.1 million was recognized in the quarter and
the remaining $4.6 million was
deferred as a reduction of the right-of-use assets.
- On August 19, 2021, Wajax and
Hitachi Construction Machinery Loaders America Inc.
("Hitachi") announced that, effective March 1, 2022, the companies plan to expand their
current Canadian direct distribution relationship to include
construction excavators, mining equipment and related aftermarket
parts. Since 2001, these products have been supplied to Wajax via a
third-party joint venture partner to Hitachi Construction Machinery
("HCM"). It was announced by HCM and its partner earlier on
August 19, 2021, that such joint
venture would be dissolved, with an expected dissolution date of
February 28, 2022.
This change is expected to provide Wajax with enhanced access to
product development, increased market responsiveness and improved
reliability of equipment supply. It is also expected to increase
Wajax and Hitachi market share by providing customers with better
access to products which lead the market in terms of value,
performance and reliability.
Wajax and Hitachi will continue to work closely on transition
planning leading up to March 1, 2022,
and continue to expect significant long-term benefits from the
expanded relationship. For more information, please see the
Corporation's press release dated August 19,
2021.
- The consignment program of HCM's joint venture partner,
relating to construction-class excavators, ended October 31, 2021. Effective November 1, 2021, the Corporation began assuming
ownership of new stock received. Inventory on hand as at
October 31, 2021 will remain subject
to the prior consignment terms, which include the opportunity for
the Corporation to purchase the inventory prior to sale to a
customer. Due to certain preferential terms being offered by the
supplier, the Corporation plans to purchase all consignment
inventory on hand as at October 31,
2021 during the fourth quarter of 2021. For inventory
received from the supplier during the period from November 1, 2021 to February 28, 2022, extended payment terms will
apply. Effective March 1, 2022, new
payment terms from the manufacturer are expected to apply. The
Corporation's existing credit facilities are expected to continue
to be sufficient to support total normal course working capital
requirements, including the effect of this change.
- On October 5, 2021, the
Corporation announced that Mark
Foote will retire as President and Chief Executive Officer
on December 31, 2021. Ignacy (Iggy) Domagalski, the Chief Executive
Officer of Tundra, which was acquired by Wajax effective
January 22, 2021, will be appointed
President and Chief Executive Officer of Wajax upon Mr. Foote's
retirement.
- Wajax announced the appointment of Jane
Craighead to its Board of Directors, effective November 1, 2021.
Ms. Craighead is a corporate director currently serving on the
boards of Jarislowsky Fraser Limited, Intertape Polymer Group Inc.
and Crombie REIT. She also serves on the board of the McGill University Health Centre Foundation and is a
Member of the Board of Regents of Mount
Allison University. Ms. Craighead has many years of
strategic human resources experience and was previously Senior Vice
President, Global Human Resources at the Bank of Nova Scotia. Prior to that, she was the Global
Practice Leader, Rewards at Rio Tinto Plc, and the Eastern Canada
Human Capital Advisory Services Business Leader at Mercer Human
Resources Consulting. Ms. Craighead holds a Ph.D. in Management and
a Graduate Diploma in Accounting from McGill
University, a Bachelor of Commerce degree (with distinction)
from Mount Allison University and is a
Chartered Professional Accountant.
In addition to her appointment as a director, Ms. Craighead was
also appointed a member of the Audit Committee and the Human
Resources and Compensation Committee of the Board of
Directors.
Notes:
|
|
|
|
(1)
|
"Backlog", "Leverage
ratio", "Senior secured leverage ratio", "Adjusted net earnings",
"Adjusted EBITDA", "Adjusted EBITDA margin" and "Pro-forma adjusted
EBITDA" do not have standardized meanings prescribed by generally
accepted accounting principles ("GAAP"). "EBIT" and "Working
capital" are additional GAAP measures. See the Non-GAAP and
Additional GAAP Measures section.
|
(2)
|
The Corporation's
backlog as at September 30, 2021 now includes customer purchase
commitments for Groupe Delom Inc. ("Delom"), NorthPoint
Technical Services ULC ("NorthPoint") and Tundra, and
therefore for comparability purposes customer purchase commitments
for Delom and NorthPoint have been added to backlog as at September
30, 2020.
|
Summary of Operating Results
|
|
|
|
Three months
ended
September 30
|
Nine months
ended
September 30
|
Statement of
earnings highlights
|
2021
|
2020
|
2021
|
2020
|
Revenue
|
$
|
401.3
|
$
|
340.6
|
$
|
1,234.5
|
$
|
1,041.6
|
Gross
profit
|
$
|
85.1
|
$
|
63.9
|
$
|
250.0
|
$
|
192.8
|
Selling and
administrative expenses
|
|
60.4
|
|
41.9
|
|
173.0
|
|
139.3
|
Restructuring and
other related costs
|
|
—
|
|
7.7
|
|
—
|
|
7.8
|
Earnings before
finance costs and income taxes(1)
|
$
|
24.7
|
$
|
14.3
|
$
|
77.0
|
$
|
45.7
|
Finance
costs
|
|
4.5
|
|
5.1
|
|
14.6
|
|
16.9
|
Earnings before
income taxes(1)
|
$
|
20.2
|
$
|
9.2
|
$
|
62.3
|
$
|
28.8
|
Income tax
expense
|
|
5.5
|
|
2.5
|
|
17.1
|
|
7.9
|
Net
earnings
|
$
|
14.7
|
$
|
6.7
|
$
|
45.3
|
$
|
20.9
|
– Basic
earnings per share(2)
|
$
|
0.68
|
$
|
0.33
|
$
|
2.13
|
$
|
1.05
|
– Diluted
earnings per share(2)
|
|
0.66
|
|
0.33
|
|
2.06
|
|
1.02
|
Adjusted net
earnings(1)(3)
|
$
|
15.5
|
$
|
10.1
|
$
|
44.5
|
$
|
25.5
|
– Adjusted
basic earnings per share(1)(2)(3)
|
$
|
0.72
|
$
|
0.50
|
$
|
2.09
|
$
|
1.27
|
– Adjusted
diluted earnings per share(1)(2)(3)
|
|
0.70
|
|
0.49
|
|
2.03
|
|
1.24
|
Adjusted
EBITDA(1)
|
$
|
40.7
|
$
|
32.4
|
$
|
117.2
|
$
|
91.0
|
Key
ratios:
|
|
|
|
|
|
|
|
|
Gross profit
margin
|
|
21.2%
|
|
18.8%
|
|
20.3%
|
|
18.5%
|
Selling and
administrative expenses as a percentage of revenue
|
|
15.1%
|
|
12.3%
|
|
14.0%
|
|
13.4%
|
EBIT
margin(1)
|
|
6.2%
|
|
4.2%
|
|
6.2%
|
|
4.4%
|
Adjusted EBITDA
margin(1)
|
|
10.1%
|
|
9.5%
|
|
9.5%
|
|
8.7%
|
Effective income tax
rate
|
|
27.3%
|
|
27.4%
|
|
27.4%
|
|
27.4%
|
Statement of
financial position highlights
As at
|
September
30
2021
|
June 30
2021
|
December 31
2020
|
Trade and other
receivables
|
$
|
221.7
|
$
|
209.7
|
$
|
214.5
|
Inventory
|
|
371.3
|
|
376.4
|
|
357.4
|
Accounts payable and
accrued liabilities
|
|
(289.1)
|
|
(271.2)
|
|
(231.7)
|
Other working capital
amounts(1)
|
|
26.6
|
|
18.0
|
|
36.0
|
Working
capital(1)
|
$
|
330.4
|
$
|
332.8
|
$
|
376.2
|
Rental
equipment
|
$
|
48.4
|
$
|
50.4
|
$
|
56.9
|
Property, plant and
equipment
|
$
|
40.5
|
$
|
41.3
|
$
|
41.4
|
Funded net
debt(1)
|
$
|
166.9
|
$
|
197.4
|
$
|
219.6
|
Key
ratios:
|
|
|
|
|
|
|
Leverage
ratio(1)
|
|
1.39
|
|
1.73
|
|
2.28
|
Senior secured
leverage ratio(1)
|
|
0.95
|
|
1.28
|
|
1.73
|
(1)
|
These measures do not
have a standardized meaning prescribed by GAAP. See the Non-GAAP
and Additional GAAP Measures section.
|
(2)
|
Weighted average
shares, net of shares held in trust outstanding for calculation of
basic and diluted earnings per share for the three months ended
September 30, 2021 was 21,409,323 (2020 – 20,033,619) and
22,075,170 (2020 – 20,513,331), respectively.
Weighted average shares, net of shares held in trust, outstanding
for calculation of basic and diluted earnings per share for the
nine months ended September 30, 2021 was 21,300,718 (2020 –
20,027,910) and 21,937,073 (2020 – 20,459,861),
respectively.
|
(3)
|
Net earnings
excluding the following:
|
|
a.
|
after-tax gain
recorded on the sale of properties of $0.1 million (2020 - gain of
$1.2 million), or basic and diluted earnings per share of less than
$0.01 (2020 - $0.06 earnings per share) for the three months ended
September 30, 2021.
|
|
b.
|
after-tax gain
recorded on the sale of properties of $0.8 million (2020 - gain of
$1.2 million), or basic and diluted earnings per share of $0.04
(2020 - $0.06 earnings per share) for the nine months ended
September 30, 2021.
|
|
c.
|
after-tax non-cash
losses on mark to market of derivative instruments of $0.9 million
(2020 – gains of $1.0 million), or basic and diluted loss per share
of $0.04 (2020 – $0.05 earnings per share) for the three months
ended September 30, 2021.
|
|
d.
|
after-tax non-cash
gains on mark to market of derivative instruments of $0.2 million
(2020 – gains of $0.2 million), or basic and diluted earnings per
share of $0.01 (2020 – $0.01 earnings per share) for the nine
months ended September 30, 2021.
|
|
e.
|
after-tax Tundra
transaction costs of $0.3 million (2020 - nil), or basic and
diluted earnings per share of $0.01 (2020 - nil) for the nine
months ended September 30, 2021.
|
|
f.
|
after-tax
restructuring and other related costs of nil (2020 – $5.6 million),
or basic and diluted earnings per share of nil (2020 – $0.28 and
$0.27 respectively) for the three months ended September 30,
2021.
|
|
g.
|
after-tax
restructuring and other related costs of nil (2020 – $5.7 million),
or basic and diluted earnings per share of nil (2020 –$0.28) for
the nine months ended September 30, 2021.
|
|
h.
|
after-tax NorthPoint
transaction costs of nil (2020 - $0.2 million), or basic and
diluted earnings per share of nil (2020 - $0.01) for the nine
months ended September 30, 2021.
|
Results of Operations
Revenue Sources
|
Three months
ended
September 30
|
Nine months
ended
September 30
|
|
2021
|
2020
|
2021
|
2020
|
Equipment
sales
|
$
|
104.7
|
$
|
106.2
|
$
|
364.5
|
$
|
326.4
|
Product
support
|
|
114.3
|
|
100.9
|
|
334.8
|
|
309.8
|
Industrial
parts
|
|
111.1
|
|
83.8
|
|
329.4
|
|
257.1
|
ERS
|
|
62.1
|
|
41.7
|
|
179.8
|
|
123.8
|
Equipment
rental
|
|
9.2
|
|
8.1
|
|
26.0
|
|
24.5
|
Total
revenue
|
$
|
401.3
|
$
|
340.6
|
$
|
1,234.5
|
$
|
1,041.6
|
Revenue in the third quarter of 2021 increased 17.8%, or
$60.7 million, to $401.3 million from $340.6
million in the third quarter of 2020. In addition to
regional revenue commentary provided previously herein, the
following factors contributed to the increase in revenue:
- Product support revenue has increased due primarily to higher
mining and power systems revenue in western Canada, and higher construction and forestry
revenue in western and eastern Canada.
- Industrial parts revenue has increased due primarily to the
acquisition of Tundra in western Canada effective January 22, 2021, and organic strength in
bearings sales in all regions.
- ERS revenue has increased due primarily to the acquisition of
Tundra in western Canada, and
higher Delom sales in eastern Canada.
For the nine months ended September 30,
2021, revenue increased 18.5%, or $192.9 million, to $1,234.5 million, from $1,041.6 million in the same period of 2020. The
following factors contributed to the increase in revenue:
- Equipment sales have increased due mainly to strength in
construction and forestry sales across all regions and higher
mining sales in western Canada.
These increases were offset partially by lower mining sales in
eastern Canada and lower material
handling sales in central Canada.
- Product support sales have increased primarily on higher
construction and forestry revenue in western and eastern
Canada, higher power systems
revenue in eastern and central Canada and higher material handling sales in
eastern and western Canada.
- Industrial parts sales have increased due mainly to the
acquisition of Tundra effective January 22,
2021 and organic strength in bearings and hydraulics sales
in all regions, but primarily in western and eastern Canada.
- ERS sales have increased due to strength in all regions, but
primarily in western Canada. The
higher ERS revenue in western Canada was driven primarily by the acquisition
of Tundra.
Backlog
Backlog of $371.5
million at September 30, 2021
increased $54.7 million, or 17.3%,
compared to June 30, 2021 due to
higher orders in most categories, offset partially by lower ERS
orders. The Corporation's backlog at September 30, 2021 of $371.5 million increased $166.4 million, or 81.2%, compared to
September 30, 2020 due to higher
orders in the construction and forestry, material handling, and
power systems categories, and higher orders in the industrial parts
and ERS categories with the addition of Tundra's
backlog.(1) These increases were offset partially by
lower mining orders.
Canada Emergency Wage
Subsidy (CEWS)
During the third quarter, the Corporation did
not recognize any reimbursement of compensation expense from the
CEWS program. During the same quarter last year, the Corporation
qualified for the CEWS and recognized $5.4
million as a reimbursement of compensation expense with
$2.6 million and $2.8 million, respectively, allocated to cost of
sales and selling and administrative expenses in proportion to
personnel costs recorded in those areas.
For the nine months ended September 30,
2021, the Corporation recognized $8.4
million as a reimbursement of compensation expense from the
CEWS program with $3.7 million and
$4.7 million, respectively, allocated
to cost of sales and selling and administrative expenses in
proportion to personnel costs recorded in those areas.
Approximately $4.0 million of the
subsidy was allocated to future employee compensation programs
which include frontline special bonuses. The resultant net pre-tax
contribution to earnings of the CEWS recovery for the nine months
ended September 30, 2021 was
approximately $4.4 million. During
the same period last year, the Corporation recognized $20.9 million as a reimbursement of compensation
expense from the CEWS program with $9.7
million and $11.2 million,
respectively, allocated to cost of sales and selling and
administrative expenses in proportion to personnel costs recorded
in those areas.
Gross profit
Gross profit increased $21.2 million, or 33.1%, in the third quarter of
2021 compared to the same quarter last year due to higher volumes
and margins, and a higher proportion of parts and service sales
compared to equipment sales. These increases were offset partially
by the prior year recovery of personnel expenses from the CEWS
program without a similar recovery in the current year.
Gross profit margin of 21.2% in the third quarter of 2021
increased 2.4% compared to gross profit margin of 18.8% in the same
period of 2020. Excluding the CEWS recoveries in the third quarter
of last year of $2.6 million, gross
profit margin in the third quarter of 2021 increased 3.2% compared
to the gross profit margin of 18.0% in the same period of 2020. The
increase in margin was driven primarily by higher equipment and
parts margins, and a higher proportion of industrial parts and ERS
sales compared to equipment sales.
For the nine months ended September 30,
2021, gross profit increased $57.2
million, or 29.7%, compared to the same period last year due
to increased volumes and margins, and a higher proportion of
industrial parts and ERS sales compared to equipment sales. These
increases were offset partially by a lower recovery of personnel
expenses from the CEWS program.
For the nine months ended September 30,
2021, gross profit margin of 20.3% increased 1.7% compared
to gross profit margin of 18.5% in the same period last year.
Excluding the CEWS recoveries for the nine months ended
September 30, 2021 and for the same
period of 2020 of $3.7 million and
$9.7 million respectively, gross
profit margin was 20.0%, representing an increase of 2.4% compared
to the gross profit margin of 17.6% in the same period of 2020. The
increase in margin was driven primarily by higher equipment and
parts margins, and a higher proportion of industrial parts and ERS
sales compared to equipment sales. The higher equipment margins
were partially driven by the accelerated disposal of aged and used
equipment in the prior year.
Selling and administrative expenses
Selling and
administrative expenses in the third quarter of 2021 increased
$18.5 million compared to the third
quarter of 2020 due mainly to additional selling and administrative
expenses related to Tundra, higher personnel costs as the volume of
business increased over the prior year, amortization expense of
$1.8 million relating to intangible
assets recognized for the Tundra acquisition, and the prior year
$2.8 million recovery of personnel
expenses from the CEWS program without a similar recovery in the
current year. Selling and administrative expenses as a percentage
of revenue increased to 15.1% in the third quarter of 2021 from
12.3% in the third quarter of 2020. Excluding the CEWS recoveries
in the third quarter of last year of $2.8
million, selling and administrative expenses as a percentage
of revenue increased from 13.1% in the third quarter last year to
15.1% in the third quarter of 2021.
For the nine months ended September 30,
2021, selling and administrative expenses increased
$33.8 million compared to the same
period last year. This increase was due mainly to additional
selling and administrative expenses related to Tundra, higher
personnel costs as the volume of business increased over the prior
year, amortization expense of $1.8
million relating to intangible assets recognized for the
Tundra acquisition, and a lower recovery of personnel expenses from
the CEWS program of $6.5 million.
Selling and administrative expenses as a percentage of revenue
increased to 14.0% in 2021 from 13.4% in 2020. Excluding the CEWS
recoveries for the nine months ended September 30, 2021 and for the same period of
2020, of $4.7 million and
$11.2 million respectively, selling
and administrative expenses as a percentage of revenue remained
consistent at 14.4%.
Finance costs
Finance costs of $4.5 million in the third quarter of 2021
decreased $0.6 million compared
to the same quarter last year due primarily to lower average
borrowings under the bank credit facility. See the Liquidity and
Capital Resources section.
For the nine months ended September 30,
2021, finance costs of $14.6
million decreased $2.3 million
compared to the same period in 2020 due primarily to lower average
borrowings under the bank credit facility. See the Liquidity and
Capital Resources section.
Income tax expense
The Corporation's effective income
tax rate of 27.3% for the third quarter of 2021 was higher compared
to the statutory rate of 26.2% due mainly to the impact of expenses
not deductible for tax purposes. The Corporation's effective income
tax rate of 27.4% for the third quarter of 2020 was higher compared
to the statutory rate of 26.5% due mainly to the impact of expenses
not deductible for tax purposes.
The Corporation's effective income tax rate of 27.4% for the
nine months ended September 30, 2021
was higher compared to the statutory rate of 26.2% due mainly to
the impact of expenses not deductible for tax purposes. The
Corporation's effective income tax rate of 27.4% for the same
period in 2020 was higher compared to the statutory rate of 26.5%
due mainly to the impact of expenses not deductible for tax
purposes.
Net earnings
In the third quarter of 2021, the
Corporation had net earnings of $14.7
million, or $0.68 per share,
compared to $6.7 million, or
$0.33 per share, in the third quarter
of 2020. The $8.0 million increase in
net earnings resulted primarily from higher volumes and margins, a
higher proportion of industrial parts and ERS sales compared to
equipment sales, and restructuring and other related costs in the
prior year of $7.7 million. These
increases were offset partially by additional selling and
administrative expenses related to Tundra, higher personnel costs
as the volume of business increased over the prior year, and the
prior year recovery of personnel expenses from the CEWS program
without a similar recovery in the current year.
For the nine months ended September 30,
2021, the Corporation generated net earnings of $45.3 million, or $2.13 per share, compared to $20.9 million, or $1.05 per share, in the same period of 2020. The
$24.3 million increase in net
earnings resulted primarily from increased volumes and margins, a
higher proportion of industrial parts and ERS sales compared to
equipment sales, and restructuring and other related costs in the
prior year of $7.8 million. These
increases were offset partially by additional selling and
administrative expenses related to Tundra, higher personnel costs
as the volume of business increased over the prior year, and a
lower recovery of personnel expenses from the CEWS program.
Adjusted net earnings (See the Non-GAAP and Additional GAAP
Measures section)
Adjusted net earnings for the three months
ended September 30, 2021 excludes a
gain recorded on the sale of properties of $0.1 million after-tax, or less than $0.01 per share (2020 - gain of $1.2 million after-tax, or $0.06 per share), and non-cash losses on mark to
market of derivative instruments of $0.9
million after-tax, or $0.04
per share (2020 - gains of $1.0
million after-tax, or $0.05
per share). Adjusted net earnings in the same period of 2020 also
excludes restructuring and other related costs of $5.6 million after-tax, or $0.28 per share.
As such, adjusted net earnings increased $5.4 million to $15.5
million, or $0.72 per share,
in the third quarter of 2021 from $10.1
million, or $0.50 per share,
in the same period of 2020.
Adjusted net earnings for the nine months ended September 30, 2021 excludes a gain recorded on
the sale of properties of $0.8
million after-tax, or $0.04
per share (2020 - gain of $1.2
million after-tax, or $0.06
per share), non-cash gains on mark to market of derivative
instruments of $0.2 million
after-tax, or $0.01 per share (2020 –
gains of $0.2 million after-tax, or
$0.01 per share), and Tundra
transaction costs of $0.3 million
after-tax, or $0.01 per share (2020 -
nil). Adjusted net earnings in the same period of 2020 also
excludes restructuring and other related costs of $5.7 million after-tax, or $0.28 per share, and NorthPoint transaction costs
of $0.2 million after-tax, or
$0.01 per share.
As such, adjusted net earnings increased $19.1 million to $44.5
million, or $2.09 per share,
for the nine months ended September 30,
2021 from $25.5 million, or
$1.27 per share, in the same period
of 2020.
Comprehensive income
Total comprehensive income of
$16.2 million in the third quarter of
2021 included net earnings of $14.7
million and an other comprehensive gain of $1.5 million. The other comprehensive gain of
$1.5 million in the current period
resulted primarily from $1.3 million
of gains on derivative instruments outstanding at the end of the
period designated as cash flow hedges.
For the nine months ended September 30,
2021, the total comprehensive income of $49.8 million included net earnings of
$45.3 million and an other
comprehensive gain of $4.5 million.
The other comprehensive gain of $4.5
million in the current year resulted primarily from
$3.9 million of gains on derivative
instruments outstanding at the end of the period designated as cash
flow hedges.
Acquisition of Tundra
On January 22, 2021, the Corporation acquired all of
the issued and outstanding shares of Calgary, Alberta-based Tundra for an aggregate
purchase price of $99.4 million
composed of cash consideration of $74.1
million and the issuance of 1,357,142 Wajax common shares
with a fair value of $25.3 million.
Founded in 1999, Tundra provides maintenance and technical services
to customers in the western Canadian midstream oil and gas, oil
sands, petrochemical, mining, forestry and municipal sectors.
Tundra also distributes a diverse range of industrial process
equipment, representing industry-leading manufacturers of valves
and actuators, instrumentation and controls, motors and drives,
control buildings, boilers and water treatment solutions. Employing
approximately 150 people at the time of acquisition, Tundra
operates four facilities in Alberta and maintains a sales presence in
western Canada. Tundra added
revenues of $93.5 million and net
earnings of $4.4 million during the
nine months ended September 30, 2021,
excluding $1.8 million of pre-tax
amortization expense relating to intangible assets recognized for
the Tundra acquisition. Consistent with Wajax's strategy, the
acquisition of Tundra is expected to provide meaningful growth in
the Corporation's ERS and industrial parts categories. Tundra's
operations are complementary to Wajax's existing ERS and industrial
parts businesses, adding extensively to its service offering and
product portfolio, and further enhancing the "One Wajax" value
proposition as macro tailwinds support the potential for a return
to pre-COVID-19 activity levels. The acquisition is expected to be
immediately accretive to Wajax shareholders in an anticipated range
of $0.10 - $0.15 (net of acquisition-related interest costs
and amortization on expected intangible assets) for the 2021
financial year, on an earnings per share basis.
Notes:
|
(1)
|
The Corporation's
backlog as at September 30, 2021 now includes customer purchase
commitments for Delom, NorthPoint and Tundra, and therefore for
comparability purposes customer purchase commitments for Delom and
NorthPoint have been added to backlog as at September 30,
2020.
|
Selected Quarterly Information
The following table summarizes unaudited quarterly consolidated
financial data for the eight most recently completed quarters.
|
2021
|
2020
|
2019
|
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
Revenue
|
$
|
401.3
|
$
|
446.1
|
$
|
387.1
|
$
|
381.0
|
$
|
340.6
|
$
|
356.9
|
$
|
344.1
|
$
|
403.9
|
Net
earnings
|
$
|
14.7
|
$
|
18.1
|
$
|
12.5
|
$
|
10.7
|
$
|
6.7
|
$
|
10.2
|
$
|
4.1
|
$
|
12.2
|
Earnings per
share
|
|
|
|
|
|
|
|
|
- Basic
|
$
|
0.68
|
$
|
0.85
|
$
|
0.59
|
$
|
0.53
|
$
|
0.33
|
$
|
0.51
|
$
|
0.20
|
$
|
0.61
|
- Diluted
|
$
|
0.66
|
$
|
0.82
|
$
|
0.58
|
$
|
0.52
|
$
|
0.33
|
$
|
0.50
|
$
|
0.20
|
$
|
0.60
|
Adjusted net
earnings(1)
|
$
|
15.5
|
$
|
16.6
|
$
|
12.4
|
$
|
9.6
|
$
|
10.1
|
$
|
9.6
|
$
|
5.8
|
$
|
10.1
|
Adjusted earnings per
share(1)
|
|
|
|
|
|
|
|
|
- Basic
|
$
|
0.72
|
$
|
0.77
|
$
|
0.59
|
$
|
0.48
|
$
|
0.50
|
$
|
0.48
|
$
|
0.29
|
$
|
0.51
|
- Diluted
|
$
|
0.70
|
$
|
0.75
|
$
|
0.57
|
$
|
0.47
|
$
|
0.49
|
$
|
0.47
|
$
|
0.28
|
$
|
0.50
|
Dividends declared
per share
|
$
|
0.25
|
$
|
0.25
|
$
|
0.25
|
$
|
0.25
|
$
|
0.25
|
$
|
0.25
|
$
|
0.25
|
$
|
0.25
|
Weighted average
common shares
outstanding - basic (in thousands)
|
21,409
|
21,409
|
21,080
|
20,034
|
20,034
|
20,034
|
20,016
|
20,009
|
(1) These
measures do not have a standardized meaning prescribed by GAAP. See
the Non-GAAP and Additional GAAP Measures section.
|
Although quarterly fluctuations in revenue and net earnings are
difficult to predict, during times of weak resource sector
activity, the first quarter will tend to have seasonally lower
revenues. However, the project timing of large mining trucks and
shovels and power generation packages can shift the revenue and net
earnings throughout the year. In addition, the sale of large
construction units can also impact revenue due to the seasonality
in that industry. Starting in 2020, revenues and net earnings have
also been impacted by COVID-19, with the impact being felt more
significantly in 2020 as compared to year-to-date 2021.
Effective January 13, 2020, the
Corporation acquired NorthPoint, and effective January 22, 2021, the Corporation acquired
Tundra. The results of operations and financial position of these
acquired businesses have been included in the figures since the
dates of acquisition. The acquisition of NorthPoint facilitated
year-over-year growth in the Corporation's ERS revenue when
comparing 2020 to 2019, which contributed to weathering the
conditions of the COVID-19 pandemic in 2020, adding $36.9 million in incremental revenue and
$2.1 million in incremental net
earnings in 2020. The acquisition of Tundra facilitated
year-over-year growth in the Corporation's ERS and industrial parts
revenue when comparing 2021 to 2020, adding $93.5 million in incremental revenue and
$4.4 million in incremental net
earnings year to date, excluding $1.8
million of pre-tax amortization expense relating to
intangible assets recognized for the Tundra acquisition.
A discussion of Wajax's previous quarterly results can be found
in Wajax's quarterly MD&A available on SEDAR at
www.sedar.com.
Consolidated Financial Condition
Capital Structure and Key Financial Condition
Measures
|
September
30
2021
|
June 30
2021
|
December 31
2020
|
Shareholders'
equity
|
$
|
386.1
|
$
|
374.6
|
$
|
325.6
|
Funded net
debt(1)
|
166.9
|
197.4
|
219.6
|
Total
capital
|
$
|
553.0
|
$
|
572.1
|
$
|
545.2
|
Funded net debt to
total capital(1)
|
|
30.2
%
|
|
34.5 %
|
|
40.3 %
|
Leverage
ratio(1)
|
1.39
|
1.73
|
2.28
|
Senior secured
leverage ratio(1)
|
0.95
|
1.28
|
1.73
|
(1) See the
Non-GAAP and Additional GAAP Measures section.
|
The Corporation's objective is to manage its working capital and
normal-course capital investment programs within a leverage range
of 1.5 to 2.0 times and to fund those programs through operating
cash flow and its bank credit facilities as required. There may be
instances whereby the Corporation is willing to maintain a leverage
ratio outside of this range during changes in economic cycles. The
Corporation may also maintain a leverage ratio above the stated
range as a result of investments in acquisitions and may fund those
acquisitions using its bank credit facilities and other debt
instruments in accordance with the Corporation's expectations of
total future cash flows, financing costs and other factors. The
Corporation's leverage ratio is currently below the target range,
due to strength in the trailing 12-month pro-forma adjusted EBITDA,
combined with a reduction in debt levels on account of significant
cash generated from operating activities. See the Funded Net Debt
section.
Shareholders' Equity
The Corporation's shareholders' equity at September 30, 2021 of $386.1 million increased $11.4 million from June
30, 2021, due primarily to total comprehensive income of
$16.2 million exceeding dividends
declared of $5.4 million. For the
nine months ended September 30, 2021,
the Corporation's shareholders' equity increased $60.4 million due primarily to total
comprehensive income of $49.8 million
and shares issued to acquire Tundra of $25.3
million, offset partially by dividends declared of
$16.1 million.
The Corporation's share capital included in shareholders' equity
on the condensed consolidated interim statements of financial
position, consists of:
|
Number of
Common Shares
|
Amount
|
Issued and
outstanding, December 31, 2020
|
20,167,703
|
$
|
182.5
|
Common shares issued
for acquisition of business
|
1,357,142
|
25.3
|
Common shares issued
to settle share-based compensation plans
|
6,583
|
0.1
|
Issued and
outstanding, September 30, 2021
|
21,531,428
|
$
|
207.8
|
Shares held in trust,
December 31, 2020
|
(134,084)
|
(1.2)
|
Released for
settlement of certain share-based compensation plans
|
11,979
|
0.1
|
Shares held in trust,
September 30, 2021
|
(122,105)
|
$
|
(1.1)
|
Issued and
outstanding, net of shares held in trust, September 30,
2021
|
21,409,323
|
$
|
206.7
|
At the date of this
MD&A, the Corporation had 21,409,323 common shares issued and
outstanding, net of shares held in trust.
|
At September 30, 2021, Wajax had
four share-based compensation plans; the Wajax Share Ownership Plan
(the "SOP"), the Directors' Deferred Share Unit Plan (the
"DDSUP"), the Mid-Term Incentive Plan for Senior Executives
(the "MTIP") (with MTIP awards being composed of performance
share units ("PSUs") and restricted share units
("RSUs")) and the Deferred Share Unit Plan (the
"DSUP").
As of September 30, 2021, there
were 516,799 SOP and DDSUP (treasury share rights plans) rights
outstanding of which 486,931 rights were vested, 297,757 MTIP PSUs
and equity-settled DSUP (market-purchased share rights plans)
rights outstanding of which 25,811 rights were vested, and 508,249
MTIP RSUs and cash-settled DSUP (cash-settled rights plans) rights
outstanding of which 10,574 rights were vested. Depending on the
actual level of achievement of the performance targets associated
with the outstanding MTIP PSUs, the number of market-purchased
shares required to satisfy the Corporation's obligations could be
higher or lower.
Wajax recorded compensation expense of $1.6 million for the quarter (2020 - expense of
$1.5 million) and compensation
expense of $5.6 million for the nine
months ended September 30, 2021 (2020
- expense of $2.7 million) in respect
of these plans.
Funded Net Debt (See the Non-GAAP and Additional GAAP
Measures section)
|
September
30
2021
|
June 30
2021
|
December 31
2020
|
Cash
|
$
|
(6.9)
|
$
|
(6.2)
|
$
|
(6.6)
|
Debentures
|
55.1
|
54.9
|
54.6
|
Long-term
debt
|
118.7
|
148.7
|
171.6
|
Funded net
debt
|
$
|
166.9
|
$
|
197.4
|
$
|
219.6
|
Funded net debt of $166.9 million
at September 30, 2021 decreased
$30.6 million compared to
$197.4 million at June 30, 2021. The decrease during the quarter
was due primarily to cash generated from operating activities of
$40.2 million and proceeds on
disposal of property, plant and equipment of $6.2 million, offset partially by the payment of
lease liabilities of $7.0 million and
dividends paid of $5.4 million.
Funded net debt of $166.9 million
at September 30, 2021 decreased
$52.7 million compared to
$219.6 million at December 31, 2020. The decrease during the year
to date was due primarily to cash generated from operating
activities of $154.1 million and
proceeds on disposal of property, plant and equipment of
$15.4 million, offset partially by
the $75.3 million in cash paid as
consideration for business acquisitions, the payment of lease
liabilities of $21.1 million and
dividends paid of $15.7 million.
The Corporation's ratio of funded net debt to total capital
decreased to 30.2% at September 30,
2021 from 34.5% at June 30,
2021, due to both the lower funded net debt level in the
current period and the higher shareholders' equity level in the
current period.
The Corporation's leverage ratio of 1.39 times at September 30, 2021 decreased from the
June 30, 2021 ratio of 1.73 times due
primarily to the lower debt level in the current period. See the
Non-GAAP and Additional GAAP Measures section.
See the Liquidity and Capital Resources section.
Financial Instruments
Wajax uses derivative financial instruments in the management of
its foreign currency, interest rate and share-based compensation
exposures. Wajax policy restricts the use of derivative financial
instruments for trading or speculative purposes.
Wajax monitors the proportion of variable rate debt to its total
debt portfolio and may enter into interest rate hedge contracts to
mitigate a portion of the interest rate risk on its variable rate
debt. A change in interest rates, in particular related to the
Corporation's unhedged variable rate debt, is not expected to have
a material impact on the Corporation's results of operations or
financial condition over the long term.
Wajax has entered into interest rate hedge contracts to minimize
exposure to interest rate fluctuations on its variable rate debt.
All interest rate hedge contracts are recorded in the unaudited
condensed consolidated interim financial statements at fair value.
As at September 30, 2021, Wajax had
the following interest rate hedge contracts outstanding:
- $150.0 million, expiring in
November 2024, with a weighted
average interest rate of 2.12% (December 31,
2020 - $150.0 million,
expiring in November 2024, with a
weighted average interest rate of 2.12%)
Wajax enters into foreign exchange forward contracts to hedge
the exchange risk associated with the cost of certain inbound
inventory and foreign currency-denominated sales to customers along
with the associated receivables as part of its normal course of
business. As at September 30, 2021,
Wajax had the following contracts outstanding:
- to buy U.S. $98.4 million
(December 31, 2020 – to buy U.S.
$45.9 million),
- to buy Euro €0.5 million (December 31,
2020 - to buy Euro €0.1 million),
- to sell U.S. $34.1 million
(December 31, 2020 – to sell U.S.
$32.2 million), and
- to sell Euro €1.0 million (December 31,
2020 – to sell €0.9 million).
The U.S. dollar contracts expire between October 2021 and January
2024, with an average U.S./Canadian dollar rate of
1.2487.
The Euro contracts expire between October
2021 and December 2022, with
an average Euro/Canadian dollar rate of 1.5066.
Wajax has entered into total return swap contracts to hedge the
exposure to share price market risk on a class of MTIP rights that
are cash-settled. All total return swap contracts are recorded in
the unaudited condensed consolidated interim financial statements
at fair value. As at September 30,
2021, Wajax had the following total return swap contracts
outstanding:
- contracts totaling 390,000 shares at an initial share value of
$6.6 million (December 31, 2020 - contracts totaling 387,000
shares at an initial share value of $7.2
million)
The total return swap contracts expire between March 2022 and March
2024.
Contractual Obligations
There have been no material changes to the Corporation's
contractual obligations since December 31,
2020, except the following:
Employee Pension Plan Wind-Up Settlement
The
Corporation sponsored three pension plans: the Wajax Limited
Pension Plan (the "Employees' Plan") which, except for a
small group of employees in a defined benefit plan, is a defined
contribution plan, and two defined benefit plans: the Pension Plan
for Executive Employees of Wajax Limited (the "Executive
Plan") and the Wajax Limited Supplemental Executive Retirement
Plan (the "SERP"). Effective December
31, 2019, the Employees' Plan was wound up, which was
comprised of both defined benefit and defined contribution
components. Benefit accruals under the plan were frozen effective
as of such date and all active members joined a new defined
contribution plan sponsored by the Corporation, the Wajax Limited
Defined Contribution Pension Plan.
During the second quarter of 2021, the Corporation settled
benefit obligations and plan assets as part of the wind-up of the
Employees' Plan effective December 31,
2019. The settlement was completed by entering into an
agreement with a third party insurance company to purchase an
annuity for participants who selected that an annuity be purchased
on their behalf, and by paying commuted values to participants who
selected a lump sum payout. The cost of the annuity purchase
totaled $4.4 million and was funded
with existing plan assets. For those participants who selected a
lump sum settlement, the total lump sum paid was $2.6 million, which was also paid from existing
plan assets. As a result of the settlement, the Employees' Plan
assets and benefit obligation declined by $7.0 million and $7.1
million, respectively, resulting in a gain on settlement of
$0.1 million that the Corporation
recorded in the condensed consolidated interim statements of
earnings during the second quarter.
See the Liquidity and Capital Resources section.
Off Balance Sheet Financing
It is likely but not reasonably certain that existing leases
will be renewed or replaced, resulting in lease commitments being
sustained at current levels. In the alternative, Wajax may incur
capital expenditures to acquire equivalent capacity.
The Corporation had $27.0 million
(December 31, 2020 – $54.6 million) of consigned inventory on hand
from a major supplier at September 30,
2021, net of deposits of $6.5
million (December 31, 2020 –
$42.3 million). In the normal course
of business, Wajax receives inventory on consignment from this
supplier which is generally sold or rented to customers or
purchased by Wajax. Under the terms of the consignment program,
Wajax is required to make periodic deposits to the supplier on the
consigned inventory that is rented to Wajax customers or on-hand
for greater than nine months. This consigned inventory is not
included in Wajax's inventory as the supplier retains title to the
goods.
Although management currently believes Wajax has adequate debt
capacity, Wajax would have to access the equity or debt capital
markets, or reduce dividends to accommodate any shortfalls in
Wajax's credit facility. See the Liquidity and Capital Resources
section.
Liquidity and Capital Resources
The Corporation's
liquidity is maintained through various sources, including bank and
non-bank credit facilities, debentures and cash generated from
operations.
Bank and Non-bank Credit Facilities and Debentures
Wajax has a $450.0 million bank
credit facility, of which $400.0
million matures October 1,
2024 and is composed of a non-revolving term facility and a
revolving term facility, and $50.0
million matures December 30,
2022 and represents a non-revolving acquisition term
facility. On October 1, 2021, the
Corporation amended its bank credit facility to extend the maturity
date for the $400.0 million
non-revolving and revolving term facilities from October 1, 2024 to October
1, 2026, and to reduce the pricing of the $50.0 million non-revolving acquisition term
facility to be in line with the non-revolving and revolving term
facilities. On January 22, 2021, the
Corporation utilized the $50.0
million non-revolving acquisition term facility to finance
the acquisition of Tundra. The remaining cash portion of the
purchase price was financed with the revolving term facility.
At September 30, 2021, Wajax had
borrowed $120.1 million and issued
$7.3 million of letters of credit for
a total utilization of $127.4 million
of its $450.0 million bank credit
facility. Borrowing capacity under the bank credit facility is
dependent on the level of inventories on-hand and outstanding trade
accounts receivables. At September 30,
2021, borrowing capacity under the bank credit facility was
equal to $450.0 million, of which
$322.6 million was accessible to the
Corporation.
The bank credit facility contains customary restrictive
covenants, including limitations on the payment of cash dividends
and an interest coverage maintenance ratio, all of which were met
as at September 30, 2021. In
particular, the Corporation is restricted from declaring dividends
in the event the Corporation's senior secured leverage ratio, as
defined in the bank credit facility agreement, exceeds 4.0 times.
At September 30, 2021, the
Corporation's senior secured leverage ratio was 0.95 times.
Borrowings under the bank credit facility bear floating rates of
interest at margins over Canadian dollar bankers' acceptance
yields, U.S. dollar LIBOR rates or prime. Margins on the facility
depend on the Corporation's leverage ratio at the time of borrowing
and range between 1.5% and 3.0% for Canadian dollar bankers'
acceptances and U.S. dollar LIBOR borrowings, and 0.5% and 2.0% for
prime rate borrowings under the non-revolving and revolving term
facilities. Margins on the non-revolving acquisition term facility
range between 1.7% and 3.3% for Canadian dollar bankers'
acceptances and U.S. dollar LIBOR borrowings, and 0.7% and 2.3% for
prime rate borrowings.
In addition, Wajax had $57.0
million of senior unsecured debentures outstanding at
September 30, 2021, bearing interest
at a rate of 6.00% per annum, payable semi-annually and maturing on
January 15, 2025. The debentures will
not be redeemable before January 15,
2023 (the "First Call Date"), except upon the
occurrence of a change of control of the Corporation in accordance
with the terms of the indenture governing the debentures (the
"Indenture"). On and after the First Call Date and prior to
January 15, 2024, the debentures will
be redeemable in whole or in part from time to time at the
Corporation's option at a redemption price equal to 103.0% of the
principal amount of the debentures redeemed plus accrued and unpaid
interest, if any, up to but excluding the date set for redemption.
On and after January 15, 2024 and
prior to the maturity date, the debentures will be redeemable, in
whole or in part, from time to time at the Corporation's option at
par plus accrued and unpaid interest, if any, up to but excluding
the date set for redemption. The Corporation shall provide not more
than 60 nor less than 30 days' prior notice of redemption of the
debentures.
The Corporation will have the option to satisfy its obligation
to repay the principal amount of the debentures due at redemption
or maturity by issuing and delivering that number of freely
tradable common shares determined in accordance with the terms of
the Indenture. The debentures will not be convertible into common
shares at the option of the holders at any time.
Under the terms of the bank credit facility, Wajax is permitted
to have additional interest bearing debt of $25.0 million. As such, Wajax has up to
$25.0 million of demand inventory
equipment financing capacity with two non-bank lenders. At
September 30, 2021, Wajax had no
utilization of the interest bearing equipment financing
facilities.
In addition, the Corporation has an agreement with a financial
institution to sell 100% of selected accounts receivable on a
recurring, non-recourse basis. Under this facility, up to
$20.0 million of accounts receivable
is permitted to be sold to the financial institution and can remain
outstanding at any point in time. After the sale, Wajax does not
retain any interests in the accounts receivable, but continues to
service and collect the outstanding accounts receivable on behalf
of the financial institution. At September
30, 2021, the Corporation continues to service and collect
$12.7 million in accounts receivable
on behalf of the financial institution.
As at September 30, 2021,
$322.6 million was accessible under
the bank facility and $25.0 million
was unutilized under the non-bank facilities. As of
November 1, 2021, Wajax continues to maintain its $450.0 million bank credit facility and an
additional $25.0 million in credit
facilities with non-bank lenders. Wajax maintains sufficient
liquidity to meet short-term normal course working capital and
maintenance capital requirements and certain strategic investments.
However, Wajax may be required to access the equity or debt capital
markets to fund significant acquisitions.
The Corporation's tolerance to interest rate risk
decreases/increases as the Corporation's leverage ratio
increases/decreases. At September 30,
2021, 100.0% of the Corporation's funded net debt was at a
fixed interest rate which is within the Corporation's interest rate
risk policy.
Cash Flow
The following table highlights the major components of cash flow
as reflected in the Condensed Consolidated Interim Statements of
Cash Flows:
|
Three months
ended
September 30
|
Nine months
ended
September 30
|
2021
|
2020
|
$ Change
|
2021
|
2020
|
$ Change
|
Net
earnings
|
$
|
14.7
|
$
|
6.7
|
$
|
8.0
|
$
|
45.3
|
$
|
20.9
|
$
|
24.3
|
Items not affecting
cash flow
|
27.0
|
19.2
|
7.8
|
73.6
|
65.3
|
8.3
|
Net change in
non-cash operating working capital
|
9.5
|
17.0
|
(7.5)
|
69.4
|
5.6
|
63.8
|
Finance costs paid on
debts
|
(3.3)
|
(4.3)
|
1.1
|
(9.2)
|
(9.4)
|
0.2
|
Finance costs paid on
lease liabilities
|
(1.9)
|
(1.9)
|
—
|
(5.9)
|
(6.2)
|
0.4
|
Interest collected on
lease receivables
|
0.1
|
0.1
|
—
|
0.2
|
0.1
|
0.1
|
Income taxes
paid
|
(4.0)
|
(0.9)
|
(3.0)
|
(13.8)
|
(4.6)
|
(9.2)
|
Rental equipment
additions
|
(3.1)
|
(3.6)
|
0.4
|
(7.9)
|
(14.8)
|
7.0
|
Rental equipment
disposals
|
1.2
|
2.7
|
(1.5)
|
4.7
|
15.5
|
(10.8)
|
Other non-current
liabilities
|
—
|
—
|
—
|
(1.8)
|
(0.2)
|
(1.6)
|
Cash paid on
settlement of total return swaps
|
—
|
—
|
—
|
(0.6)
|
(1.4)
|
0.8
|
Cash generated from
operating activities
|
$
|
40.2
|
$
|
34.8
|
$
|
5.4
|
$
|
154.1
|
$
|
70.7
|
$
|
83.4
|
Cash generated from
(used in) investing activities
|
$
|
3.0
|
$
|
4.7
|
$
|
(1.7)
|
$
|
(63.5)
|
$
|
(16.2)
|
$
|
(47.3)
|
Cash used in
financing activities
|
$
|
(42.5)
|
$
|
(29.7)
|
$
|
(12.8)
|
$
|
(90.4)
|
$
|
(59.4)
|
$
|
(31.0)
|
Operating Activities
Cash flows generated from
operating activities amounted to $40.2
million in the third quarter of 2021, compared to cash flows
generated from operating activities of $34.8
million in the same quarter of the previous year. The
increase in cash generated from operating activities of
$5.4 million was mainly attributable
to an increase in net earnings excluding items not affecting cash
flow of $15.8 million, offset
partially by a decrease in cash generated from changes in non-cash
operating working capital of $7.5
million and an increase in income taxes paid of $3.0 million.
Rental equipment additions in the third quarter of 2021 of
$3.1 million (2020 – $3.6 million) related primarily to material
handling lift trucks.
For the nine months ended September 30,
2021, cash flows generated from operating activities
amounted to $154.1 million, compared
to cash flows generated from operating activities of $70.7 million for the previous year. The increase
in cash generated from operating activities of $83.4 million was mainly attributable to an
increase in cash generated from changes in non-cash operating
working capital of $63.8 million, an
increase in net earnings excluding items not affecting cash flow of
$32.7 million, and a decrease in
rental equipment additions of $7.0
million, offset partially by a decrease in rental equipment
disposals of $10.8 million, and an
increase in income taxes paid of $9.2
million. The increase in cash generated from changes in
non-cash operating working capital of $63.8
million was driven primarily by an increase in cash
generated from changes in accounts payable and accrued liabilities
of $90.4 million and an increase in
cash generated from changes in deposits on inventory of
$41.2 million, offset partially by a
decrease in cash generated from changes in trade and other
receivables of $25.9 million, a
decrease in cash generated from changes in contract assets of
$17.7 million and a decrease in cash
generated from changes in inventories of $21.9 million.
For the nine months ended September 30,
2021, rental equipment additions of $7.9 million (2020 – $14.8
million) related primarily to material handling lift
trucks.
Changes in significant components of non-cash operating working
capital include the following:
Changes in
Non-cash Operating Working Capital(1)
|
Three months
ended
September 30
|
Nine months
ended
September 30
|
|
2021
|
2020
|
2021
|
2020
|
Trade and other
receivables
|
$
|
(11.1)
|
$
|
(0.1)
|
$
|
10.4
|
$
|
36.2
|
Contract
assets
|
(5.6)
|
(3.0)
|
(15.2)
|
2.5
|
Inventory
|
5.6
|
29.6
|
4.3
|
26.2
|
Deposits on
inventory
|
2.6
|
(2.0)
|
32.8
|
(8.5)
|
Prepaid
expenses
|
(1.1)
|
(0.4)
|
(2.7)
|
(0.7)
|
Accounts payable and
accrued liabilities
|
18.0
|
(13.6)
|
36.7
|
(53.8)
|
Provisions
|
(0.7)
|
6.3
|
(1.9)
|
5.7
|
Contract
liabilities
|
1.7
|
0.1
|
5.2
|
(2.0)
|
Total Changes in
Non-cash Operating Working Capital
|
$
|
9.5
|
$
|
17.0
|
$
|
69.4
|
$
|
5.6
|
(1)
Increase (decrease) in cash flow.
|
Significant components of the changes in non-cash operating
working capital for the quarter ended September 30, 2021 compared to the quarter ended
September 30, 2020 are as
follows:
- Trade and other receivables increased $11.1 million in the third quarter of 2021,
compared to an increase of $0.1
million in the same period of 2020. The increase in the
third quarter of 2021 resulted primarily from higher sales activity
in the quarter compared to the previous quarter.
- Inventory decreased $5.6 million
in the third quarter of 2021 compared to a decrease of $29.6 million in the same period of 2020. The
decrease in 2020 was due primarily to lower equipment inventory in
the construction, power generation and mining categories.
- Accounts payable and accrued liabilities increased $18.0 million in the third quarter of 2021
compared to a decrease of $13.6
million in the same period of 2020. The increase in the
third quarter of 2021 resulted primarily from higher trade payables
and higher payroll, bonuses and incentives accruals, offset
partially by lower accrued liabilities. The decrease in 2020
resulted primarily from reduced inventory purchasing activity as
the Corporation managed its working capital.
Significant components of the changes in non-cash operating
working capital for the nine months ended September 30, 2021 compared to the nine months
ended September 30, 2020 are as
follows:
- Trade and other receivables decreased $10.4 million in 2021 when excluding the trade
and other receivables acquired through business acquisitions of
$17.5 million, compared to a decrease
of $36.2 million in 2020. The
decrease in 2021 resulted primarily from strong overall
collections, including the collection of a prior year receivable
balance for a large mining shovel. The decrease in 2020 resulted
primarily from lower sales activity.
- Contract assets increased $15.2
million in 2021 when excluding the contract assets acquired
through business acquisitions of $8.0
million, compared to a decrease of $2.5 million in 2020. The increase in 2021
resulted from more work completed but not yet billed on customer
contracts.
- Inventory decreased $4.3 million
in 2021 when excluding the inventory acquired through business
combinations of $18.1 million,
compared to a decrease of $26.2
million in the same period of 2020. The decrease in 2020 was
due primarily to lower equipment and parts inventory as the
Corporation managed its inventory levels.
- Deposits on inventory decreased $32.8
million in 2021 compared to an increase of $8.5 million in 2020. The decrease in 2021
resulted from the sale of older consignment inventory for which the
Corporation had made deposits.
- Accounts payable and accrued liabilities increased $36.7 million in 2021 when excluding the accounts
payable and accrued liabilities acquired through business
acquisitions of $20.2 million,
compared to a decrease of $53.8
million in 2020. The increase in 2021 resulted primarily
from higher trade payables on increased inventory purchasing, and
higher payroll, bonuses and incentives accruals. The decrease in
2020 resulted primarily from reduced inventory purchasing activity
as the Corporation managed its working capital.
Investing Activities
The Corporation generated
$3.0 million of cash from investing
activities in the third quarter of 2021 compared to cash generated
from investing activities of $4.7
million in the same quarter of 2020. During the third
quarter of 2021, Wajax invested $2.0
million in property, plant and equipment additions, compared
to $1.6 million in the same period of
2020. Proceeds on disposal of property, plant and equipment,
consisting primarily of proceeds on disposal of properties,
amounted to $6.2 million in the third
quarter of 2021, compared to $6.3
million in the same period of 2020. The Corporation invested
$1.7 million towards business
acquisitions in the third quarter of 2021, compared to nil in the
same period of 2020.
For the nine months ended September 30,
2021, the Corporation used $63.5
million of cash in investing activities compared to cash
used in investing activities of $16.2
million in the same period of 2020. For the nine months
ended September 30, 2021, Wajax
invested $4.3 million in property,
plant and equipment additions, compared to $4.1 million in the same period of 2020. Proceeds
on disposal of property, plant and equipment, consisting primarily
of proceeds on disposal of properties, amounted to $15.4 million for the year to date, compared to
$6.7 million for the same period of
2020. For the nine months ended September
30, 2021, Wajax invested $75.3
million towards business acquisitions, compared to
$17.9 million towards business
acquisitions, in the same period of 2020.
Financing Activities
The Corporation used $42.5 million of cash in financing activities in
the third quarter of 2021 compared to cash used in financing
activities of $29.7 million in the
same quarter of 2020. Financing activities in the quarter included
a net bank credit facility repayment of $30.1 million (2020 – net repayment of
$18.6 million), payment of lease
liabilities of $7.0 million (2020 –
$6.1 million) and dividends paid to
shareholders of $5.4 million (2020 –
$5.0 million).
For the nine months ended September 30,
2021, the Corporation used $90.4
million of cash in financing activities compared to using
$59.4 million in the same period of
2020. Financing activities for the nine months ended September 30, 2021 included a net bank credit
facility repayment of $52.9 million
(2020 – net repayment of $27.2
million), the payment of lease liabilities of $21.1 million (2020 – $16.7 million) and dividends paid to shareholders
of $15.7 million (2020 – $15.0 million).
Dividends
Dividends to shareholders were declared and
payable to shareholders of record as follows:
Record
Date
|
Payment
Date
|
Per
Share
|
Amount
|
March 15,
2021
|
April 6,
2021
|
$
|
0.25
|
$
|
5.4
|
June 15,
2021
|
July 6,
2021
|
$
|
0.25
|
$
|
5.4
|
September 15,
2021
|
October 5,
2021
|
$
|
0.25
|
$
|
5.4
|
Nine months ended
September 30, 2021
|
|
$
|
0.75
|
$
|
16.1
|
On November 1, 2021, the Corporation declared a dividend of
$0.25 per share for the fourth
quarter of 2021 payable on January 5, 2022 to shareholders of
record on December 15, 2021.
Critical Accounting Estimates
The preparation of the
unaudited condensed consolidated interim financial statements in
conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, revenue
and expenses. Critical accounting estimates are those that require
management to make assumptions about matters that are highly
uncertain at the time the estimate or assumption is made. Critical
accounting estimates are also those that could potentially have a
material impact on the Corporation's financial results were a
different estimate or assumption used.
Estimates and underlying assumptions are reviewed on an ongoing
basis. These estimates and assumptions are subject to change at any
time based on experience and new information. Revisions to
accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected.
On March 11, 2020, the World
Health Organization declared the novel coronavirus a global
pandemic. With the majority of governments worldwide declaring a
state of emergency in response to the COVID-19 pandemic, any
estimate of the length and severity of these developments is
therefore subject to significant uncertainty, and accordingly
estimates of the extent to which the COVID-19 pandemic may
materially and adversely affect the Corporation's operations,
financial results and condition in future periods are also subject
to significant uncertainty. Therefore, uncertainty about
judgements, estimates and assumptions made by management during the
preparation of the Corporation's unaudited condensed consolidated
interim financial statements related to the potential impacts of
the COVID-19 outbreak on revenue, expenses, assets, liabilities,
and note disclosures could result in a material adjustment to the
carrying value of the asset or liability affected.
The key assumptions concerning the future and other key
sources of estimation uncertainty that have a significant risk of
resulting in a material adjustment to the carrying amount of assets
and liabilities within the next fiscal year are as follows:
Allowance for credit losses
The Corporation is exposed
to credit risk with respect to its trade and other receivables, and
COVID-19 has increased the measurement uncertainty with respect to
the determination of the allowance for expected credit losses.
However, this is partially mitigated by the Corporation's
diversified customer base of over 32,000 customers, with no one
customer accounting for more than 10% of the Corporation's annual
consolidated sales, which covers many business sectors across
Canada. In addition, the
Corporation's customer base spans large public companies, small
independent contractors, original equipment manufacturers and
various levels of government. The Corporation follows a program of
credit evaluations of customers and limits the amount of credit
extended when deemed necessary. The Corporation maintains an
allowance for possible credit losses, and any such losses to date
have been within management's expectations. The allowance for
credit losses is determined by estimating the lifetime expected
credit losses, taking into account the Corporation's past
experience of collecting payments as well as observable changes in
and forecasts of future economic conditions that correlate with
default on receivables. At the point when the Corporation is
satisfied that no recovery of the amount owing is possible, the
amount is considered not recoverable and the financial asset is
written off. The $1.4 million
allowance for credit losses at September 30,
2021 decreased $2.2 million
from $3.6 million at December 31, 2020. As economic conditions change,
there is risk that the Corporation could experience a greater
number of defaults compared to prior periods which would result in
an increased charge to earnings.
Inventory obsolescence
The value of the Corporation's
new and used equipment and high value parts are evaluated by
management throughout the year, on a unit-by-unit basis considering
projected customer demand, future market conditions, and other
considerations evaluated by management. When required, provisions
are recorded to ensure that the book value of equipment and parts
are valued at the lower of cost or estimated net realizable value.
The Corporation performs an aging analysis to identify slow moving
or obsolete lower value parts inventory and estimates appropriate
obsolescence provisions related thereto. The Corporation takes
advantage of supplier programs that allow for the return of
eligible parts for credit within specified time periods. The
inventory obsolescence impact on earnings for the three months
ended September 30, 2021 was a
recovery of $0.1 million (2020 –
charge of $1.1 million) and for the
nine months ended September 30, 2021
was a charge of $0.3 million (2020 -
charge of $5.4 million). As economic
conditions change, there is risk that the Corporation could have an
increase in inventory obsolescence compared to prior periods which
would result in an increased charge to earnings.
Goodwill and intangible assets
The value in use of
goodwill and intangible assets has been estimated using the
forecasts prepared by management for the next five years. The key
assumptions for the estimate are those regarding revenue growth,
EBITDA margin, discount rate and the level of working capital
required to support the business. These estimates are based on past
experience and management's expectations of future changes in the
market and forecasted growth initiatives.
Unanticipated changes in management's assumptions or estimates
could materially affect the determination of the fair value of the
Corporation and therefore, could reduce or eliminate the excess of
fair value over the carrying value of a Corporation and could
potentially result in an impairment charge in the future.
The Corporation performs an annual impairment test of its
goodwill and intangible assets unless there is an early indication
that the assets may be impaired in which case the impairment tests
would occur earlier. There was no early indication of impairment in
the quarter ended September 30, 2021.
Lease term of contracts with renewal options
The
lease term is defined as the non-cancellable term of the lease,
including any periods covered by a renewal option to extend the
lease if it is reasonably certain that the renewal option will be
exercised, or any periods covered by an option to terminate the
lease, if it is reasonably certain that the termination option will
not be exercised.
Judgement is used when evaluating whether the Corporation is
reasonably certain that the lease renewal option will be exercised,
including examining any factors that may provide an economic
incentive for renewal. In the event of a significant event within
the Corporation's control that could affect its ability to exercise
the renewal option, the lease term will be reassessed.
Changes in Accounting Policies
During the period, the
Corporation did not adopt any new accounting standards or
amendments that had an impact on the Corporation's unaudited
condensed consolidated interim financial statements.
Risk Management and Uncertainties
As with most
businesses, the Corporation is subject to a number of marketplace
and industry related risks and uncertainties which could have a
material impact on operating results and the Corporation's ability
to pay cash dividends to shareholders. The Corporation attempts to
minimize many of these risks through diversification of core
businesses and through the geographic diversity of its operations.
In addition, the Corporation has adopted an annual enterprise risk
management assessment which is prepared by senior management and
overseen by the Board of Directors and committees of the Board of
Directors. The enterprise risk management framework sets out
principles and tools for identifying, evaluating, prioritizing and
managing risk effectively and consistently across the Corporation.
There are however, a number of risks that deserve particular
comment which are discussed in detail in the MD&A for the year
ended December 31, 2020 which can be
found on SEDAR at www.sedar.com.
Disclosure Controls and Procedures and Internal Control over
Financial Reporting
Wajax's management, under the
supervision of its Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"), is responsible for establishing
and maintaining disclosure controls and procedures
("DC&P") and internal control over financial reporting
("ICFR").
As at September 30, 2021, Wajax's
management, under the supervision of its CEO and CFO, had designed
DC&P to provide reasonable assurance that information required
to be disclosed by Wajax in annual filings, interim filings or
other reports filed or submitted under applicable securities
legislation is recorded, processed, summarized and reported within
the time periods specified in such securities legislation. DC&P
are designed to ensure that information required to be disclosed by
Wajax in annual filings, interim filings or other reports filed or
submitted under applicable securities legislation is accumulated
and communicated to Wajax's management, including its CEO and CFO,
as appropriate, to allow timely decisions regarding required
disclosure.
As at September 30, 2021, Wajax's
management, under the supervision of its CEO and CFO, had designed
ICFR to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with IFRS. In completing the
design, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in its 2013
version of Internal Control – Integrated Framework. With regard to
general controls over information technology, management also used
the set of practices of Control Objectives for Information and
related Technology created by the IT Governance Institute. The
Corporation has excluded from its evaluation the ICFR of Tundra,
which was acquired effective January 22,
2021, as discussed in Note 4 of the unaudited condensed
consolidated interim financial statements and accompanying notes
for the period ended September 30,
2021. The total revenue subject to Tundra's ICFR represented
7.6% of the Corporation's consolidated total revenue for the nine
months ended September 30, 2021. The
total assets subject to Tundra's ICFR represented 6.7% of the
Corporation's consolidated total assets as at September 30, 2021.
There was no change in Wajax's ICFR that occurred during the
three months ended September 30, 2021
that has materially affected, or is reasonably likely to materially
affect, Wajax's ICFR.
Non-GAAP and Additional GAAP Measures
The MD&A
contains certain non-GAAP and additional GAAP measures that do not
have a standardized meaning prescribed by GAAP. Therefore, these
financial measures may not be comparable to similar measures
presented by other issuers. Investors are cautioned that these
measures should not be construed as an alternative to net earnings
or to cash flow from operating, investing, and financing activities
determined in accordance with GAAP as indicators of the
Corporation's performance. The Corporation's management believes
that:
(i)
|
these measures are
commonly reported and widely used by investors and
management;
|
(ii)
|
the non-GAAP measures
are commonly used as an indicator of a company's cash operating
performance, profitability and ability to raise and service
debt;
|
(iii)
|
the additional GAAP
measures are commonly used to assess a company's earnings
performance excluding its capital and tax structures;
|
(iv)
|
"Adjusted net
earnings" and "Adjusted basic and diluted earnings per
share" provide indications of the results by the Corporation's
principal business activities prior to recognizing non-recurring
costs (recoveries) and non-cash losses (gains) on mark to market of
derivative instruments. These adjustments to net earnings and basic
and diluted earnings per share allow the Corporation's management
to consistently compare periods by removing infrequent charges
incurred outside of the Corporation's principal business activities
and the impact of fluctuations in interest rates and the
Corporation's share price;
|
(v)
|
"Adjusted
EBITDA" provides an indication of the results by the
Corporation's principal business activities prior to recognizing
non-recurring costs (recoveries) and non-cash losses (gains) on
mark to market of derivative instruments. These adjustments to
EBITDA allow the Corporation's management to consistently compare
periods by removing infrequent charges incurred outside of the
Corporation's principal business activities and the impact of
fluctuations in finance costs related to the Corporation's capital
structure, tax rates, long-term assets and the Corporation's share
price; and
|
(vi)
|
"Pro-forma
adjusted EBITDA" used in calculating the Leverage ratio and
Senior secured leverage ratio provides an indication of the results
by the Corporation's principal business activities adjusted for the
EBITDA of business acquisitions made during the period as if they
were made at the beginning of the trailing 12-month period pursuant
to the terms of the bank credit facility and the deduction of
payments of lease liabilities, and prior to recognizing
non-recurring costs (recoveries) and non-cash losses (gains) on
mark to market of derivative instruments.
|
Non-GAAP financial measures are identified and defined
below:
Funded net
debt
|
Funded net debt
includes bank indebtedness, debentures and total long-term debt,
net of cash. Funded net debt is relevant in calculating the
Corporation's funded net debt to total capital, which is a non-GAAP
measure commonly used as an indicator of a company's ability to
raise and service debt.
|
|
|
Debt
|
Debt is funded net
debt plus letters of credit. Debt is relevant in calculating the
Corporation's leverage ratio, which is a non-GAAP measure commonly
used as an indicator of a company's ability to raise and service
debt.
|
|
|
Total
capital
|
Total capital is
shareholders' equity plus funded net debt.
|
|
|
EBITDA
|
Net earnings (loss)
before finance costs, income tax expense, depreciation and
amortization.
|
|
|
EBITDA
margin
|
Defined as EBITDA
divided by revenue, as presented in the condensed consolidated
interim statements of earnings.
|
|
|
Adjusted net
earnings (loss)
|
Net earnings (loss)
before after-tax restructuring and other related costs
(recoveries), (gain) loss recorded on the sale of properties,
non-cash losses (gains) on mark to market of derivative
instruments, Tundra transaction costs and NorthPoint transaction
costs.
|
|
|
Adjusted basic and
diluted earnings (loss) per share
|
Basic and diluted
earnings (loss) per share before after-tax restructuring and other
related costs (recoveries), (gain) loss recorded on the sale of
properties, non-cash losses (gains) on mark to market of derivative
instruments, Tundra transaction costs and NorthPoint transaction
costs.
|
|
|
Adjusted
EBITDA
|
EBITDA before
restructuring and other related costs (recoveries), (gain) loss
recorded on the sale of properties, non-cash losses (gains) on mark
to market of derivative instruments, Tundra transaction costs and
NorthPoint transaction costs.
|
|
|
Adjusted EBITDA
margin
|
Defined as adjusted
EBITDA divided by revenue, as presented in the condensed
consolidated interim statements of earnings.
|
|
|
Pro-forma adjusted
EBITDA
|
Defined as adjusted
EBITDA adjusted for the EBITDA of business acquisitions made during
the period as if they were made at the beginning of the trailing
12-month period pursuant to the terms of the bank credit facility
and the deduction of payments of lease liabilities.
|
|
|
Leverage
ratio
|
The leverage ratio is
defined as debt at the end of a particular quarter divided by
trailing 12-month pro-forma adjusted EBITDA. The Corporation's
objective is to maintain this ratio between 1.5 times and 2.0
times.
|
|
|
Senior secured
leverage ratio
|
The senior secured
leverage ratio is defined as debt excluding debentures at the end
of a particular quarter divided by trailing 12-month pro-forma
adjusted EBITDA.
|
|
|
Funded net debt to
total capital
|
Defined as funded net
debt divided by total capital. Total capital is the funded net debt
plus shareholder's equity.
|
|
|
Backlog
|
Backlog is a
management measure which includes the total sales value of customer
purchase commitments for future delivery or commissioning of
equipment, parts and related services, including ERS projects. This
differs from the remaining performance obligations as defined by
IFRS 15 Revenue from Contracts with Customers.
|
|
|
Additional GAAP
measures are identified and defined below:
|
|
Earnings
(loss) before finance costs and income taxes
(EBIT)
|
Earnings (loss)
before finance costs and income taxes, as presented in the
condensed consolidated interim statements of earnings.
|
|
|
EBIT
margin
|
Defined as EBIT
divided by revenue, as presented in the condensed consolidated
interim statements of earnings.
|
|
|
Earnings (loss)
before income taxes (EBT)
|
Earnings (loss)
before income taxes, as presented in the condensed consolidated
interim statements of earnings.
|
|
|
Working
capital
|
Defined as current
assets less current liabilities, as presented in the condensed
consolidated interim statements of financial position.
|
|
|
Other working
capital amounts
|
Defined as working
capital less trade and other receivables and inventory plus
accounts payable and accrued liabilities, as presented in the
condensed consolidated interim statements of financial
position.
|
Reconciliation of the Corporation's net earnings to adjusted net
earnings and adjusted basic and diluted earnings per share is as
follows:
|
Three months
ended
|
Nine months
ended
|
|
September
30
|
September
30
|
|
2021
|
2020
|
2021
|
2020
|
Net
earnings
|
$
|
14.7
|
$
|
6.7
|
$
|
45.3
|
$
|
20.9
|
Restructuring and
other related costs, after-tax
|
—
|
5.6
|
—
|
5.7
|
Gain recorded on the
sale of properties, after-tax
|
(0.1)
|
(1.2)
|
(0.8)
|
(1.2)
|
Non-cash losses
(gains) on mark to market of derivative instruments,
after-tax
|
0.9
|
(1.0)
|
(0.2)
|
(0.2)
|
NorthPoint
transaction costs, after-tax
|
—
|
—
|
—
|
0.2
|
Tundra transaction
costs, after-tax
|
—
|
—
|
0.3
|
—
|
Adjusted net
earnings
|
$
|
15.5
|
$
|
10.1
|
$
|
44.5
|
$
|
25.5
|
Adjusted basic
earnings per share(1)(2)
|
$
|
0.72
|
$
|
0.50
|
$
|
2.09
|
$
|
1.27
|
Adjusted diluted
earnings per share(1)(2)
|
$
|
0.70
|
$
|
0.49
|
$
|
2.03
|
$
|
1.24
|
(1)
|
For the three months
ended September 30, 2021, the numbers of basic and diluted shares
outstanding were 21,409,323 and 22,075,170, respectively (2020 -
20,033,619 and 20,513,331, respectively).
|
(2)
|
For the nine months
ended September 30, 2021, the numbers of basic and diluted shares
outstanding were 21,300,718 and 21,937,073, respectively (2020 -
20,027,910 and 20,459,861, respectively)
|
Reconciliation of the Corporation's net earnings to EBT, EBIT,
EBITDA, Adjusted EBITDA and Pro-forma adjusted EBITDA is as
follows:
|
Three months
ended
|
Nine months
ended
|
Twelve months
ended
|
|
September
30
2021
|
September 30
2020
|
September
30
2021
|
September 30
2020
|
September
30
2021
|
June 30
2021
|
December 31
2020
|
Net
earnings
|
$
|
14.7
|
$
|
6.7
|
$
|
45.3
|
$
|
20.9
|
$
|
56.0
|
$
|
48.0
|
$
|
31.7
|
Income tax
expense
|
5.5
|
2.5
|
17.1
|
7.9
|
21.1
|
18.1
|
11.9
|
EBT
|
$
|
20.2
|
$
|
9.2
|
$
|
62.3
|
$
|
28.8
|
$
|
77.1
|
$
|
66.1
|
$
|
43.6
|
Finance
costs
|
4.5
|
5.1
|
14.6
|
16.9
|
18.7
|
19.3
|
21.0
|
EBIT
|
$
|
24.7
|
$
|
14.3
|
$
|
77.0
|
$
|
45.7
|
$
|
95.8
|
$
|
85.4
|
$
|
64.6
|
Depreciation and
amortization
|
14.8
|
13.2
|
41.1
|
38.9
|
54.6
|
53.0
|
52.4
|
EBITDA
|
$
|
39.5
|
$
|
27.5
|
$
|
118.0
|
$
|
84.6
|
$
|
150.4
|
$
|
138.4
|
$
|
117.0
|
Restructuring and
other related costs(1)
|
—
|
7.7
|
—
|
7.8
|
—
|
7.7
|
7.8
|
Gain recorded on the
sale of properties
|
(0.1)
|
(1.4)
|
(1.0)
|
(1.4)
|
(2.2)
|
(3.6)
|
(2.7)
|
Non-cash losses
(gains) on mark to market of derivative
instruments(2)
|
1.3
|
(1.4)
|
(0.3)
|
(0.2)
|
(1.5)
|
(4.2)
|
(1.4)
|
NorthPoint
transaction costs(3)
|
—
|
—
|
—
|
0.2
|
—
|
—
|
0.2
|
Tundra transaction
costs(4)
|
—
|
—
|
0.4
|
—
|
1.4
|
1.4
|
1.0
|
Adjusted
EBITDA
|
$
|
40.7
|
$
|
32.4
|
$
|
117.2
|
$
|
91.0
|
$
|
148.1
|
$
|
139.8
|
$
|
122.0
|
Tundra acquisition
pro-forma EBITDA(5)
|
—
|
—
|
—
|
—
|
4.0
|
8.1
|
—
|
Payment of lease
liabilities(6)
|
(7.0)
|
(6.1)
|
(21.1)
|
(16.7)
|
(27.3)
|
(26.3)
|
(22.9)
|
Pro-forma adjusted
EBITDA
|
$
|
33.7
|
$
|
26.3
|
$
|
96.1
|
$
|
74.3
|
$
|
124.9
|
$
|
121.6
|
$
|
99.0
|
(1)
|
For 2020,
restructuring and other related costs consists primarily of costs
relating to workforce reductions in response to the economic
conditions created by COVID-19 and related sales volume
impacts.
|
(2)
|
Non-cash (gains)
losses on mark to market of non-hedged derivative
instruments.
|
(3)
|
In 2020, the
Corporation incurred transaction costs in order to acquire
NorthPoint. These costs were primarily for advisory
services.
|
(4)
|
In both 2021 and
2020, the Corporation incurred transaction costs relating to the
Tundra acquisition. These costs were primarily for advisory
services.
|
(5)
|
Pro-forma adjusted
EBITDA for Tundra for pre-acquisition periods, to adjust for the
EBITDA of business acquisitions made during the period as if they
were made at the beginning of the trailing 12-month period pursuant
to the terms of the bank credit facility.
|
(6)
|
Effective with the
reporting period beginning on January 1, 2019 and the adoption of
IFRS 16, the Corporation amended the definition of Funded net debt
to exclude lease liabilities not considered part of debt. As a
result, the corresponding lease costs must also be deducted from
EBITDA for the purpose of calculating the leverage
ratio.
|
Calculation of the Corporation's funded net debt, debt, leverage
ratio and senior secured leverage ratio is as follows:
|
September
30
2021
|
June 30
2021
|
December 31
2020
|
Cash
|
$
|
(6.9)
|
$
|
(6.2)
|
$
|
(6.6)
|
Debentures
|
55.1
|
54.9
|
54.6
|
Long-term
debt
|
118.7
|
148.7
|
171.6
|
Funded net
debt
|
$
|
166.9
|
$
|
197.4
|
$
|
219.6
|
Letters of
credit
|
7.3
|
12.8
|
6.4
|
Debt
|
$
|
174.2
|
$
|
210.2
|
$
|
226.0
|
Pro-forma adjusted
EBITDA(1)
|
$
|
124.9
|
$
|
121.6
|
$
|
99.0
|
Leverage
ratio(2)
|
1.39
|
1.73
|
2.28
|
Senior secured
leverage ratio(3)
|
0.95
|
1.28
|
1.73
|
(1)
|
For the twelve months
ended September 30, 2021, June 30, 2021 and December 31,
2020.
|
(2)
|
Calculation uses debt
divided by the trailing four-quarter Pro-forma adjusted EBITDA.
This leverage ratio is calculated for purposes of monitoring the
Corporation's objective target leverage ratio of between 1.5 times
and 2.0 times, and is different from the leverage ratio calculated
under the Corporation's bank credit facility agreement.
|
(3)
|
Calculation uses debt
excluding debentures divided by the trailing four-quarter Pro-forma
adjusted EBITDA. While the calculation contains some differences
from the leverage ratio calculated under the Corporation's bank
credit facility agreement, the resulting leverage ratio under the
bank credit facility agreement is not significantly different. See
the Liquidity and Capital Resources section.
|
Cautionary Statement Regarding Forward-Looking
Information
This MD&A contains certain forward-looking
statements and forward-looking information, as defined in
applicable securities laws (collectively, "forward-looking
statements"). These forward-looking statements relate to future
events or the Corporation's future performance. All statements
other than statements of historical fact are forward-looking
statements. Often, but not always, forward looking statements can
be identified by the use of words such as "plans", "anticipates",
"intends", "predicts", "expects", "is expected", "scheduled",
"believes", "estimates", "projects" or "forecasts", or variations
of, or the negatives of, such words and phrases or state that
certain actions, events or results "may", "could", "would",
"should", "might" or "will" be taken, occur or be achieved.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors beyond the Corporation's ability to
predict or control which may cause actual results, performance and
achievements to differ materially from those anticipated or implied
in such forward-looking statements. To the extent any
forward-looking information in this MD&A constitutes
future-oriented financial information or financial outlook within
the meaning of applicable securities law, such information is being
provided to demonstrate the potential of the Corporation and
readers are cautioned that this information may not be appropriate
for any other purpose. There can be no assurance that any
forward-looking statement will materialize. Accordingly, readers
should not place undue reliance on forward looking statements. The
forward-looking statements in this MD&A are made as of the date
of this MD&A, reflect management's current beliefs and are
based on information currently available to management. Although
management believes that the expectations represented in such
forward-looking statements are reasonable, there is no assurance
that such expectations will prove to be correct. Specifically, this
MD&A includes forward looking statements regarding, among other
things, the main elements of our One Wajax strategy, including our
focus on executing clear plans in five important areas: investments
in our team, investments in our customers, executing our organic
growth strategy, our accretive acquisition strategy and investments
in our infrastructure; our introduction of a more comprehensive
sustainability program and the achievement of targets and goals
related to employee health, safety and wellness, training and
development, diversity and equal opportunity, sustainable products
and services, environmental responsibility, governance and
community; our expectation that revenue associated with the
acquisition of Tundra will be a significant contributor to our
total revenue growth in 2021; our continued intention to work
closely with our major suppliers in relation to inventory
availability and supply chain service levels; our expectation that
current challenges with the availability of construction and
forestry, material handling and power systems equipment inventory
will persist into the fourth quarter; our plans to continue our
focus on success in construction and forestry, mining, material
handling and power systems, including improvements in product
support volumes; our belief that we have excellent growth
opportunities in the aforementioned heavy equipment categories and
our intention to continue to work closely with our supplier
partners to prudently grow market share and capture aftermarket
sales; our expectation that our industrial parts and ERS categories
will yield strong growth, including the contribution of Tundra, and
that ERS continues to be one of Wajax's most significant
opportunities, capable of growth at each point in the economic
cycle; our plan to minimize the implementation risks associated
with our new ERP system by conducting such implementation over a
24-month period; the planned expansion of our Canadian direct
distribution relationship with Hitachi effective March 1, 2022, as well as the expected benefits
of such expanded relationship, including enhanced access to product
development, increased market responsiveness, improved reliability
of equipment supply and increased market share; our intention to
continue working with Hitachi on transition planning for our
expanded direct distribution relationship, and our mutual continued
expectation of significant long-term benefits from such
relationship; the end of a consignment program relating to
construction-class excavators received from HCM's joint venture
partner, including our plans to purchase all consignment inventory
on hand during the fourth quarter of 2021, our expectation that new
credit terms from the manufacturer will apply effective
March 1, 2022 and our expectation
that our existing credit facilities will be sufficient to support
normal course working capital requirements, including the effect of
these changes; our expectation that Tundra will provide meaningful
growth in our ERS and industrial parts categories and that the
acquisition of Tundra will be immediately accretive to shareholders
in an anticipated range of $0.10 -
$0.15 (net of acquisition-related
interest costs and amortization on expected intangible assets) for
the 2021 financial year on an earnings per share basis; our
objective of managing our working capital and normal course capital
investment programs within a leverage range of 1.5 – 2.0 times, and
to fund such programs through operating cash flow and our bank
credit facilities as required; the potential that we may maintain a
leverage ratio outside our target range due to changes in economic
cycles and investments in acquisitions, and that we may fund
acquisitions using bank credit facilities and other debt
instruments; our expectation that the impact of changes in interest
rates (in particular, related to unhedged variable rate debt) will
not have a material impact on our results of operations or
financial condition over the longer term; our current belief in the
adequacy of our debt capacity and sufficiency of our debt
facilities, and our intention and ability to access debt and equity
markets or reduce dividends should additional capital be required,
including the potential that we may access equity or debt markets
to fund significant acquisitions; and our financing, working and
maintenance capital requirements, as well as our capital structure
and leverage ratio. These statements are based on a number of
assumptions which may prove to be incorrect, including, but not
limited to, our ability to successfully manage our business through
the COVID-19 pandemic and actions taken by governments, public
authorities, suppliers and customers in response to the novel
coronavirus and its variants; the ability of HCM and its partner to
dissolve their joint venture arrangements, including their ability
to complete the steps necessary for such dissolution in a timely
manner or at all, and to obtain any required approvals for, or
consents to, such dissolution; the ability of Hitachi and Wajax to
develop and execute successful sales, marketing and other plans
related to their expanded direct distribution relationship; general
business and economic conditions; the supply and demand for, and
the level and volatility of prices for, oil, natural gas and other
commodities; financial market conditions, including interest rates;
our ability to execute our updated Strategic Plan, including our
ability to develop our core capabilities, execute our organic
growth priorities, complete and effectively integrate acquisitions,
such as Tundra, and to successfully implement new information
technology platforms, systems and software, such as our new ERP
system; the future financial performance of the Corporation; our
costs; market competition; our ability to attract and retain
skilled staff; our ability to procure quality products and
inventory; and our ongoing relations with suppliers, employees and
customers. The foregoing list of assumptions is not exhaustive.
Factors that may cause actual results to vary materially include,
but are not limited to, the geographic spread and ultimate impact
of the COVID-19 virus and its variants, and the duration of the
coronavirus pandemic; the duration and severity of travel, business
and other restrictions imposed by governments and public
authorities in response to COVID-19, as well as other measures that
may be taken by such authorities; actions taken by our suppliers
customers in relation to the COVID-19 pandemic, including slowing,
reducing or halting operations; the inability of HCM and its
partner to dissolve their joint venture arrangements
satisfactorily, including their inability to complete the steps
necessary for such dissolution in a timely manner or at all, or the
failure to obtain any required approvals for, or consents to, such
dissolution on acceptable terms; the ability of Hitachi and Wajax
to develop and execute successful sales, marketing and other plans
related to their expanded direct distribution relationship; a
continued or prolonged deterioration in general business and
economic conditions (including as a result of the COVID-19
pandemic); volatility in the supply and demand for, and the level
of prices for, oil, natural gas and other commodities; a continued
or prolonged decrease in the price of oil or natural gas;
fluctuations in financial market conditions, including interest
rates; the level of demand for, and prices of, the products and
services we offer; levels of customer confidence and spending;
market acceptance of the products we offer; termination of
distribution or original equipment manufacturer agreements;
unanticipated operational difficulties (including failure of plant,
equipment or processes to operate in accordance with specifications
or expectations, cost escalation, our inability to reduce costs in
response to slow-downs in market activity, unavailability of
quality products or inventory, supply disruptions (including
disruptions caused by the COVID-19 pandemic), job action and
unanticipated events related to health, safety and environmental
matters); our ability to attract and retain skilled staff and our
ability to maintain our relationships with suppliers, employees and
customers. The foregoing list of factors is not exhaustive. Further
information concerning the risks and uncertainties associated with
these forward-looking statements and the Corporation's business may
be found in this MD&A under the heading "Risk Management and
Uncertainties" and in our Annual Information Form for the year
ended December 31, 2020 (the
"AIF"), and in our annual MD&A for financial risks, each
of which have been filed on SEDAR. The forward-looking statements
contained in this MD&A are expressly qualified in their
entirety by this cautionary statement. The Corporation does not
undertake any obligation to publicly update such forward-looking
statements to reflect new information, subsequent events or
otherwise unless so required by applicable securities laws.
Readers are cautioned that the risks described in the AIF, and
in our annual MD&A, are not the only risks that could impact
the Corporation. We cannot accurately predict the full impact that
COVID-19 will have on our business, results of operations,
financial condition or the demand for our products and services due
to the uncertainties related to the spread of the virus and its
variants. Risks and uncertainties not currently known to the
Corporation, or currently deemed to be immaterial, may have a
material effect on the Corporation's business, financial condition
or results of operations.
Additional information, including Wajax's Annual Report, are
available on SEDAR at www.sedar.com.
W A J A X C O R P O R A T IO
N
C O N D E N S E D C O N S O L I D A T E
D I N T E R I M S T A T E M E N T
S O F
F I N A N C I A L P O S I T
I O N
As at
(unaudited, in
thousands of Canadian dollars)
|
Note
|
September 30,
2021
|
December 31,
2020
|
ASSETS
|
|
|
|
CURRENT
|
|
|
|
Cash
|
|
$
|
6,880
|
$
|
6,625
|
Trade and other
receivables
|
5
|
221,654
|
214,507
|
Contract
assets
|
6
|
46,129
|
23,003
|
Inventory
|
7
|
371,253
|
357,421
|
Deposits on
inventory
|
7
|
11,440
|
44,197
|
Lease receivables -
current
|
|
3,098
|
2,039
|
Prepaid
expenses
|
|
8,593
|
5,639
|
Derivative financial
assets - current
|
16
|
2,964
|
1,597
|
|
|
672,011
|
655,028
|
NON-CURRENT
|
|
|
|
Rental
equipment
|
8
|
48,390
|
56,901
|
Property, plant and
equipment
|
8
|
40,535
|
41,371
|
Right-of-use
assets
|
9
|
133,408
|
131,733
|
Lease
receivables
|
|
6,611
|
5,120
|
Goodwill and
intangible assets
|
|
170,665
|
90,726
|
Derivative financial
assets
|
16
|
1,775
|
511
|
|
|
401,384
|
326,362
|
Total
assets
|
|
$
|
1,073,395
|
$
|
981,390
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
CURRENT
|
|
|
|
|
Accounts payable and
accrued liabilities
|
10
|
$
|
289,063
|
$
|
231,726
|
Provisions -
current
|
11
|
4,807
|
6,744
|
Contract
liabilities
|
6
|
12,515
|
7,064
|
Dividends
payable
|
17
|
5,352
|
5,008
|
Income taxes
payable
|
|
1,488
|
1,085
|
Lease liabilities -
current
|
12
|
27,645
|
23,852
|
Derivative financial
liabilities - current
|
16
|
740
|
3,387
|
|
|
341,610
|
278,866
|
NON-CURRENT
|
|
|
|
Provisions
|
11
|
216
|
216
|
Deferred tax
liabilities
|
|
15,727
|
1,388
|
Employee
benefits
|
13
|
8,887
|
9,223
|
Derivative financial
liabilities
|
16
|
4,467
|
8,285
|
Other
liabilities
|
|
2,893
|
2,365
|
Lease
liabilities
|
12
|
139,765
|
129,181
|
Debentures
|
14
|
55,072
|
54,638
|
Long-term
debt
|
15
|
118,684
|
171,580
|
|
|
345,711
|
376,876
|
Total
liabilities
|
|
687,321
|
655,742
|
SHAREHOLDERS'
EQUITY
|
|
|
|
Share
capital
|
17
|
206,705
|
181,274
|
Contributed
surplus
|
|
8,344
|
7,698
|
Retained
earnings
|
|
172,969
|
143,271
|
Accumulated other
comprehensive loss
|
|
(1,944)
|
(6,595)
|
Total shareholders'
equity
|
|
386,074
|
325,648
|
Total liabilities and
shareholders' equity
|
|
$
|
1,073,395
|
$
|
981,390
|
Subsequent events
(Note 25)
|
See accompanying
notes to unaudited condensed consolidated interim financial
statements.
|
W A J A X C O R P O R A T I O
N
C O N D E N S E D C O N S O L I D A T E
D I N T E R I M S T A T E M E N T
S O F
E A R N I N G S
|
|
Three months
ended
September 30
|
Nine months ended
September 30
|
(unaudited, in
thousands of Canadian dollars, except
per share data)
|
Note
|
2021
|
2020
|
2021
|
2020
|
|
|
|
|
|
|
Revenue
|
19
|
$
|
401,305
|
$
|
340,620
|
$
|
1,234,504
|
$
|
1,041,629
|
Cost of
sales
|
|
316,189
|
276,676
|
984,490
|
848,794
|
Gross
profit
|
|
85,116
|
63,944
|
250,014
|
192,835
|
Selling and
administrative expenses
|
|
60,427
|
41,934
|
173,044
|
139,290
|
Restructuring and
other related costs
|
|
—
|
7,687
|
—
|
7,799
|
Earnings before
finance costs and income taxes
|
|
24,689
|
14,323
|
76,970
|
45,746
|
Finance
costs
|
20
|
4,524
|
5,138
|
14,627
|
16,907
|
Earnings before
income taxes
|
|
20,165
|
9,185
|
62,343
|
28,839
|
Income tax
expense
|
21
|
5,508
|
2,514
|
17,065
|
7,902
|
Net
earnings
|
|
$
|
14,657
|
$
|
6,671
|
$
|
45,278
|
$
|
20,937
|
|
|
|
|
|
|
Basic earnings per
share
|
17
|
$
|
0.68
|
$
|
0.33
|
$
|
2.13
|
$
|
1.05
|
Diluted earnings per
share
|
17
|
0.66
|
0.33
|
2.06
|
1.02
|
W A J A X C O R P O R A T I O
N
C O N D E N S E D C O N S O L I D A T E
D I N T E R I M S T A T E M E N T
S O F
C O M P R E H E N S I V E I
N C O M E
|
|
Three months
ended
September 30
|
Nine months ended
September 30
|
(unaudited, in
thousands of Canadian dollars)
|
Note
|
2021
|
2020
|
2021
|
2020
|
Net
earnings
|
|
$
|
14,657
|
$
|
6,671
|
$
|
45,278
|
$
|
20,937
|
Items that will
not be reclassified to income
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses on
pension plans, net of tax recovery of $52 (2020 - nil)
|
13
|
—
|
—
|
(142)
|
—
|
|
|
|
|
|
|
Items that may be
subsequently reclassified to earnings
|
|
|
|
|
|
|
|
|
|
|
|
Losses (gains) on
derivative instruments designated as
cash flow hedges in prior periods reclassified to
net earnings during the period, net of tax recovery of
$100 (2020 - expense of $71) and year to date, net
of tax recovery of $278 (2020 - expense of $299)
|
|
271
|
(194)
|
755
|
(813)
|
|
|
|
|
|
|
Gains (losses) on
derivative instruments outstanding
at the end of the period designated as cash flow
hedges, net of tax expense of $462 (2020 - recovery
of $40) and year to date, net of tax expense of
$1,434 (2020 - recovery of $1,545)
|
|
1,255
|
(110)
|
3,896
|
(4,200)
|
|
|
|
|
|
|
Other comprehensive
income (loss), net of tax
|
|
1,526
|
(304)
|
4,509
|
(5,013)
|
Total comprehensive
income
|
|
$
|
16,183
|
$
|
6,367
|
$
|
49,787
|
$
|
15,924
|
|
See accompanying
notes to unaudited condensed consolidated interim financial
statements.
|
W A J A X C O R P O R A T I O
N
C O N D E N S E D C O N S O L I D A T E
D I N T E R I M S T A T E M E N T S
O F
C H A N G E S I N
S H A R E H O L D E R S ' E Q U I T Y
|
|
|
|
|
Accumulated
other
comprehensive
loss
|
|
For the nine months
ended September 30, 2021
(unaudited, in
thousands of Canadian dollars)
|
Note
|
Share
capital
|
Contributed
surplus
|
Retained
earnings
|
Cash flow
hedges
|
Total
|
|
|
|
|
|
|
|
December 31,
2020
|
|
$
|
181,274
|
$
|
7,698
|
$
|
143,271
|
$
|
(6,595)
|
$
|
325,648
|
Net
earnings
|
|
—
|
—
|
45,278
|
—
|
45,278
|
Other comprehensive
(loss) income
|
|
—
|
—
|
(142)
|
4,651
|
4,509
|
Total comprehensive
income
|
|
—
|
—
|
45,136
|
4,651
|
49,787
|
Shares issued to
settle share-based compensation plans
|
17
|
67
|
(67)
|
—
|
—
|
—
|
Shares released from
trust to settle share-based compensation plans
|
17
|
108
|
(1,007)
|
618
|
—
|
(281)
|
Share-based
compensation expense
|
18
|
—
|
1,720
|
—
|
—
|
1,720
|
Shares issued for
acquisition of business
|
4
|
25,256
|
—
|
—
|
—
|
25,256
|
Dividends
declared
|
17
|
—
|
—
|
(16,056)
|
—
|
(16,056)
|
September 30,
2021
|
|
$
|
206,705
|
$
|
8,344
|
$
|
172,969
|
$
|
(1,944)
|
$
|
386,074
|
|
See accompanying
notes to unaudited condensed consolidated interim financial
statements.
|
W A J A X C O R P O R A T I O
N
C O N D E N S E D C O N S O L I D A T E
D I N T E R I M S T A T E M E N T
S O F
C H A N G E S I
N S H A R E H O L D E R S ' E Q U I T
Y
|
|
|
|
|
Accumulated
other
comprehensive
loss
|
|
For the nine months
ended September 30, 2020
(unaudited, in
thousands of Canadian dollars)
|
Note
|
Share
capital
|
Contributed
surplus
|
Retained
earnings
|
Cash flow
hedges
|
Total
|
|
|
|
|
|
|
|
December 31,
2019
|
|
$
|
181,075
|
$
|
7,165
|
$
|
130,961
|
$
|
(2,386)
|
$
|
316,815
|
Net
earnings
|
|
—
|
—
|
20,937
|
—
|
20,937
|
Other comprehensive
loss
|
|
—
|
—
|
—
|
(5,013)
|
(5,013)
|
Total comprehensive
income (loss)
|
|
—
|
—
|
20,937
|
(5,013)
|
15,924
|
Shares released from
trust to settle share-based compensation plans
|
17
|
199
|
(1,264)
|
721
|
—
|
(344)
|
Share-based
compensation expense
|
18
|
—
|
1,719
|
—
|
—
|
1,719
|
Dividends
declared
|
17
|
—
|
—
|
(15,024)
|
—
|
(15,024)
|
September 30,
2020
|
|
$
|
181,274
|
$
|
7,620
|
$
|
137,595
|
$
|
(7,399)
|
$
|
319,090
|
|
See accompanying
notes to unaudited condensed consolidated interim financial
statements.
|
W A J A X C O R P O R A T I O
N
C O N D E N S E D C O N S O L I D A T E
D I N T E R I M S T A T E M E N T
S O F
C A S H F L O W S
|
|
Three months
ended
September 30
|
Nine months ended
September 30
|
(unaudited, in
thousands of Canadian dollars)
|
Note
|
2021
|
2020
|
2021
|
2020
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
Net
earnings
|
|
$
|
14,657
|
$
|
6,671
|
$
|
45,278
|
$
|
20,937
|
Items not affecting
cash flow:
|
|
|
|
|
|
Depreciation and
amortization:
|
|
|
|
|
|
Rental
equipment
|
8
|
3,794
|
4,415
|
11,509
|
14,357
|
Property, plant and
equipment
|
8
|
1,875
|
1,879
|
5,510
|
5,650
|
Right-of-use
assets
|
9
|
6,451
|
6,483
|
20,087
|
17,559
|
Intangible
assets
|
|
2,663
|
431
|
3,967
|
1,334
|
Gain on disposal of
property, plant and equipment
|
8
|
(233)
|
(1,650)
|
(1,515)
|
(1,865)
|
Share-based
compensation expense
|
18
|
1,576
|
1,527
|
5,575
|
2,702
|
Non-cash income from
finance leases
|
|
(212)
|
156
|
(437)
|
(320)
|
Employee benefits
expense, net of employer contributions
|
|
55
|
(106)
|
(756)
|
134
|
Loss (gain) on
derivative financial instruments
|
16
|
1,025
|
(1,586)
|
(2,035)
|
899
|
Finance
costs
|
20
|
4,524
|
5,138
|
14,627
|
16,907
|
Income tax
expense
|
21
|
5,508
|
2,514
|
17,065
|
7,902
|
|
|
41,683
|
25,872
|
118,875
|
86,196
|
Changes in non-cash
operating working capital
|
22
|
9,505
|
16,968
|
69,448
|
5,646
|
Rental equipment
additions
|
8
|
(3,149)
|
(3,585)
|
(7,881)
|
(14,846)
|
Rental equipment
disposals
|
8
|
1,232
|
2,729
|
4,736
|
15,502
|
Other non-current
liabilities
|
|
(20)
|
(36)
|
(1,791)
|
(227)
|
Cash paid on
settlement of total return swaps
|
16
|
—
|
—
|
(613)
|
(1,396)
|
Finance costs paid on
debts
|
|
(3,274)
|
(4,333)
|
(9,217)
|
(9,423)
|
Finance costs paid on
lease liabilities
|
12, 20
|
(1,857)
|
(1,906)
|
(5,863)
|
(6,213)
|
Interest collected on
lease receivables
|
|
56
|
51
|
167
|
109
|
Income taxes
paid
|
|
(3,966)
|
(927)
|
(13,760)
|
(4,599)
|
Cash generated from
operating activities
|
|
40,210
|
34,833
|
154,101
|
70,749
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
Property, plant and
equipment additions
|
8
|
(1,998)
|
(1,577)
|
(4,343)
|
(4,070)
|
Proceeds on disposal
of property, plant and equipment
|
|
6,245
|
6,273
|
15,442
|
6,709
|
Intangible assets
additions
|
|
(223)
|
(244)
|
(1,127)
|
(1,646)
|
Collection of lease
receivables
|
|
703
|
293
|
1,816
|
727
|
Acquisition of
business (net of cash acquired)
|
4
|
(1,716)
|
—
|
(75,256)
|
(17,931)
|
Cash generated from
(used in) investing activities
|
|
3,011
|
4,745
|
(63,468)
|
(16,211)
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
Net decrease in bank
debt
|
15
|
(30,129)
|
(18,596)
|
(52,924)
|
(27,232)
|
Transaction costs on
debts
|
15
|
—
|
—
|
(393)
|
(37)
|
Payment of lease
liabilities
|
12
|
(7,012)
|
(6,070)
|
(21,068)
|
(16,727)
|
Payment of tax
withholding for share-based compensation
|
|
—
|
—
|
(281)
|
(345)
|
Dividends
paid
|
|
(5,352)
|
(5,008)
|
(15,712)
|
(15,019)
|
Cash used in financing
activities
|
|
(42,493)
|
(29,674)
|
(90,378)
|
(59,360)
|
Change in cash and
bank indebtedness
|
|
728
|
9,904
|
255
|
(4,822)
|
Cash (bank
indebtedness) - beginning of period
|
|
6,152
|
(11,546)
|
6,625
|
3,180
|
Cash (bank
indebtedness) - end of period
|
|
$
|
6,880
|
$
|
(1,642)
|
$
|
6,880
|
$
|
(1,642)
|
|
See accompanying
notes to unaudited condensed consolidated interim financial
statements.
|
WAJAX CORPORATION
NOTES TO CONDENSED
CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
September 30, 2021
(unaudited, amounts in thousands of Canadian dollars, except share
and per share data)
1. COMPANY PROFILE
Wajax Corporation (the "Corporation") is incorporated in
Canada. The address of the
Corporation's registered head office is 2250 Argentia Road,
Mississauga, Ontario, Canada. The
Corporation operates an integrated distribution system, providing
sales, parts and services to a broad range of customers in
diversified sectors of the Canadian economy, including:
construction, forestry, mining, industrial and commercial, oil
sands, transportation, metal processing, government and utilities,
and oil and gas.
2. BASIS OF PREPARATION
Statement of compliance
These unaudited condensed
consolidated interim financial statements have been prepared in
accordance with International Accounting Standard ("IAS") 34,
Interim Financial Reporting and do not include all of the
disclosures required for annual consolidated financial statements.
Accordingly, these unaudited condensed consolidated interim
financial statements should be read in conjunction with the audited
consolidated financial statements of the Corporation for the year
ended December 31, 2020. The
significant accounting policies follow those disclosed in the most
recently reported audited consolidated financial statements.
These unaudited condensed consolidated interim financial
statements were authorized for issue by the Board of Directors on
November 1, 2021.
3. CHANGE IN ACCOUNTING POLICIES
During the period, the Corporation did not adopt any new
accounting standards or amendments that had an impact on the
Corporation's unaudited condensed consolidated interim financial
statements.
4. ACQUISITION OF BUSINESS
Tundra Process Solutions Ltd. ("Tundra")
On January 22, 2021, the
Corporation acquired all of the issued and outstanding shares of
Calgary, Alberta-based Tundra.
Founded in 1999, Tundra provides maintenance and technical services
to customers in the western Canadian midstream oil and gas, oil
sands, petrochemical, mining, forestry and municipal sectors.
Tundra also distributes a diverse range of industrial process
equipment, representing industry-leading manufacturers of valves
and actuators, instrumentation and controls, motors and drives,
control buildings, boilers and water treatment solutions.
The acquisition was accounted for as a business combination
using the acquisition method whereby the net assets acquired were
recorded at fair value. Final valuations of certain items are not
yet complete, due to the timing of the acquisition and the inherent
complexity associated with valuations. Therefore, the purchase
price allocation is preliminary and subject to adjustment on
completion of the valuation process. During the quarter, amounts
allocated to assets acquired and liabilities assumed were revised.
The main revisions, resulting from changes in estimates, were to
increase intangible assets by $42,000, decrease goodwill by $32,615 and to increase deferred tax liabilities
by $9,536. Other tangible net assets
increased by $151.
The following table summarizes the acquisition-date fair value
of each major class of consideration transferred, the recognized
amounts of the identifiable assets acquired and liabilities
assumed, and the resulting value of goodwill:
Consideration
transferred:
|
|
|
Cash
consideration
|
$
|
74,137
|
Fair value of common
share consideration
|
|
25,256
|
|
$
|
99,393
|
Fair value of
assets and liabilities recognized:
|
|
|
Cash
|
$
|
597
|
Trade and other
receivables
|
|
16,632
|
Contract
assets
|
|
7,951
|
Inventory
|
|
17,738
|
Prepaid
expenses
|
|
241
|
Property, plant and
equipment
|
|
4,329
|
Right-of-use
assets
|
|
6,138
|
Accounts payable and
accrued liabilities
|
|
(20,196)
|
Contract
liabilities
|
|
(220)
|
Lease
liabilities
|
|
(6,076)
|
Deferred tax
liabilities
|
|
(9,777)
|
Tangible net assets
acquired
|
$
|
17,357
|
Intangible
assets
|
|
42,000
|
Goodwill
|
|
40,036
|
|
$
|
99,393
|
Net cash outflow for the acquisition was $73,540, as $597 of
cash was acquired as part of Tundra's net assets.
Trade and other receivables represents gross contractual amounts
receivable of $16,809 less
management's best estimate of the allowance for credit losses of
$177.
The fair value of common shares transferred as consideration is
based on the Corporation's quoted share price on the date of
acquisition, which was $18.61 per
share.
Goodwill arising from the acquisition is attributable mainly to
the ability to leverage the assembled workforce, industry
knowledge, future growth and the potential to realize synergies in
the form of cost savings. The goodwill recorded on the acquisition
of Tundra is not deductible for income tax purposes.
For the quarter, Tundra revenues of $38,542 and net earnings of $1,706 were included in the condensed
consolidated interim statements of earnings. Tundra revenues of
$93,504 and net earnings of
$4,427 were included in the condensed
consolidated interim statements of earnings from the date of
acquisition to September 30, 2021.
Had the acquisition of Tundra occurred on January 1, 2021, the consolidated revenue would
have increased by $5,449 and the
consolidated net earnings would have increased by $145 for the nine months ended September 30, 2021.
Tundra transaction costs, primarily for advisory services, were
nil for the quarter and $405 for the
nine months ended September 30, 2021
and were included in selling and administrative expenses in the
condensed consolidated interim statements of earnings.
Additionally, Tundra transaction costs of $1,041 were recognized during the fourth quarter
of 2020 in selling and administrative expenses.
QT Valve & Supply Limited ("QT Valve")
On September 1, 2021, the
Corporation acquired all of the issued and outstanding shares of
Fort St. John, British
Columbia-based QT Valve, a supplier of valves and valve
services to the western oil and gas market. QT Valve was acquired
for total consideration of $1,795,
subject to post-closing adjustments. Tangible net assets acquired
and goodwill recognized upon acquisition were $1,052 and $743,
respectively. Final valuations of certain items are not yet
complete, due to the timing of the acquisition and the inherent
complexity associated with valuations. Therefore, the purchase
price allocation is preliminary and subject to adjustment on
completion of the valuation process.
5. TRADE AND OTHER RECEIVABLES
The Corporation's trade and other receivables consist of trade
accounts receivable from customers and other accounts receivable,
generally from suppliers for warranty and rebates. Trade and other
receivables are comprised of the following:
|
September 30,
2021
|
December 31,
2020
|
Trade accounts
receivable
|
$
|
196,236
|
$
|
191,482
|
Less: allowance for
credit losses
|
|
(1,420)
|
|
(3,626)
|
Net trade accounts
receivable
|
$
|
194,816
|
$
|
187,856
|
Other
receivables
|
|
26,838
|
|
26,651
|
Total trade and other
receivables
|
$
|
221,654
|
$
|
214,507
|
6. CONTRACT ASSETS AND LIABILITIES
The following table provides information about contract assets
and contract liabilities from contracts with customers:
|
September 30,
2021
|
December 31,
2020
|
Contract
assets
|
$
|
46,129
|
$
|
23,003
|
Contract
liabilities
|
|
12,515
|
|
7,064
|
The contract assets primarily relate to the Corporation's rights
to consideration for work completed but not billed at the reporting
date on product support and engineered repair services
("ERS") revenue. The contract assets are transferred to
receivables when billed upon completion of significant milestones.
The contract liabilities primarily relate to the advance billing or
advance consideration received from customers on equipment sales,
industrial parts, and ERS revenue, for which revenue is recognized
when control transfers to the customer.
7. INVENTORY
The Corporation's inventory balance consists of the
following:
|
September 30,
2021
|
December 31,
2020
|
Equipment
|
$
|
193,835
|
$
|
218,740
|
Parts
|
|
145,082
|
|
125,252
|
Work-in-process
|
|
32,336
|
|
13,429
|
Total
inventory
|
$
|
371,253
|
$
|
357,421
|
All amounts shown are net of obsolescence provisions of
$26,175 (December 31, 2020 - $28,144).
As at September 30, 2021, the
Corporation has included $52,839
(December 31, 2020 - $41,815) in equipment inventory related to
short-term rental contracts that are expected to convert to
equipment sales within a six to twelve month period.
Substantially all of the Corporation's inventory is pledged as
security for the bank credit facility.
Deposits on inventory in the condensed consolidated interim
statements of financial position, amounting to $11,440 as at September
30, 2021 (December 31, 2020 -
$44,197), represents deposits and
other required periodic payments on equipment primarily held on
consignment. These payments reduce the collateral value of the
equipment and therefore the ultimate amount owing to the supplier
upon eventual purchase. Upon sale of the equipment to a customer,
the Corporation is required to purchase the equipment in full from
the supplier.
8. PROPERTY, PLANT AND EQUIPMENT &
RENTAL EQUIPMENT
The Corporation's property, plant and equipment balance at
September 30, 2021 is $40,535 (December 31,
2020 - $41,371). The
Corporation acquired property, plant and equipment with a cost of
$1,998 during the quarter (2020 -
$1,577) and $4,343 year to date (2020 - $4,070), net of property, plant and equipment
acquired through business acquisitions of $4,389 year to date (2020 - $3,409). Assets with a carrying amount of
$1,368 during the quarter (2020 -
$2,050) and $4,611 year to date (2020 - $2,271) were disposed of, resulting in a gain on
disposal of $233 during the quarter
(2020 - gain of $1,650) and a gain on
disposal of $1,515 year to date (2020
- gain of $1,865). The disposals
included the sale and leaseback transactions described in Note 9.
The Corporation recognized depreciation of property, plant and
equipment of $1,875 during the
quarter (2020 - $1,879) and
$5,510 year to date (2020 -
$5,650).
The Corporation's rental equipment balance at September 30, 2021 is $48,390 (December 31,
2020 - $56,901). The
Corporation acquired rental equipment with a cost of $3,149 during the quarter (2020 - $3,585) and $7,881
year to date (2020 - $14,846). Rental
equipment with a carrying amount of $1,232 during the quarter (2020 - $2,729) and $4,736
year to date (2020 - $15,502) was
disposed of. The Corporation recognized depreciation of rental
equipment of $3,794 during the
quarter (2020 - $4,415) and
$11,509 year to date (2020 -
$14,357).
9. RIGHT-OF-USE ASSETS
The Corporation's right-of-use assets balance at September 30, 2021 is $133,408 (December 31,
2020 - $131,733). The
Corporation recognized net right-of-use assets additions of
$3,393 during the quarter (2020 -
$13,014) and $16,030 year to date (2020 - $21,302). In addition, the Corporation acquired
right-of-use assets through business acquisitions of $6,138 year to date (2020 - $12,926).
The Corporation recognized depreciation of right-of-use assets
during the quarter of $6,451 (2020 -
$6,483) and $20,087 year to date (2020 - $17,559).
The Corporation entered into sale and leaseback transactions for
two of its owned properties during the quarter (2020 - one of its
owned properties) and three of its owned properties year to date
(2020 - one of its owned properties). The proceeds net of
transaction costs on the sale of the properties were $5,314 during the quarter (2020 - $5,238) and $13,819
year to date (2020 - $5,238), and the
carrying amount was $603 during the
quarter (2020 - $1,210) and
$3,623 year to date (2020 -
$1,210). The transactions resulted in
a total gain on the sale of the properties of $4,711 during the quarter (2020 - $4,028) and $10,196
year to date (2020 - $4,028), of
which $67 during the quarter (2020 -
$1,455) and $880 year to date (2020 - $1,455) was recognized in the condensed
consolidated interim statements of earnings at the time of the
transaction; the remaining $4,644
during the quarter (2020 - $2,573)
and $9,316 year to date (2020 -
$2,573) was deferred as a reduction
of the right-of-use assets. The Corporation also recorded lease
liabilities of $5,269 during the
quarter (2020 - $3,346) and
$10,534 year to date (2020 -
$3,346), and right-of-use assets of
$625 during the quarter (2020 -
$773) and $1,218 year to date (2020 - $773) related to these sale and leaseback
transactions. The terms of the leases signed in the quarter are 10
and 15 years (2020 - 10 years).
10. ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES
Accounts payable and accrued liabilities are comprised of the
following:
|
September 30,
2021
|
December 31,
2020
|
Trade
payables
|
$
|
184,448
|
$
|
137,016
|
Deferred rental
income
|
|
1,317
|
|
854
|
Supplier payables
with extended terms
|
|
18,721
|
|
23,493
|
Payroll, bonuses and
incentives
|
|
39,362
|
|
26,204
|
Accrued
liabilities
|
|
45,215
|
|
44,159
|
Accounts payable and
accrued liabilities
|
$
|
289,063
|
$
|
231,726
|
Supplier payables with extended terms relate to equipment
purchases from suppliers with payment terms ranging anywhere from
approximately 60 days to 8 months.
11. PROVISIONS AND CONTINGENCIES
|
Restructuring
|
Warranties
|
Other
|
Total
|
Provisions, December
31, 2020
|
$
|
3,752
|
$
|
1,074
|
$
|
2,134
|
$
|
6,960
|
Charge for the
period
|
|
—
|
|
7,694
|
|
1,590
|
|
9,284
|
Utilized in the
period
|
|
(2,435)
|
|
(7,419)
|
|
(1,367)
|
|
(11,221)
|
Provisions, September
30, 2021
|
$
|
1,317
|
$
|
1,349
|
$
|
2,357
|
$
|
5,023
|
|
|
|
|
|
|
|
|
|
Current
portion
|
$
|
1,317
|
$
|
1,349
|
$
|
2,141
|
$
|
4,807
|
Non-current
portion
|
|
—
|
|
—
|
|
216
|
|
216
|
Total
|
$
|
1,317
|
$
|
1,349
|
$
|
2,357
|
$
|
5,023
|
Contingencies
In the ordinary course of business, the
Corporation is contingently liable for various amounts that could
arise from litigation, environmental matters or other sources. The
Corporation does not expect the resolution of these matters to have
a materially adverse effect on its financial position or results of
operations. Provisions have been made in these unaudited condensed
consolidated interim financial statements when the liability is
expected to result in an outflow of economic resources, and where
the obligation can be reliably measured.
12. LEASE LIABILITIES AND LEASE
RECEIVABLES
As lessee
The Corporation leases properties for its
branch network, certain vehicles, machinery and IT equipment.
The change in lease liabilities is as follows:
|
|
Three months
ended
September 30
|
Nine months ended
September 30
|
|
Note
|
2021
|
2020
|
2021
|
2020
|
Balance at beginning
of period
|
|
$
|
163,421
|
$
|
140,143
|
$
|
153,033
|
$
|
127,130
|
Changes from
operating cash flows
|
|
|
|
|
|
|
|
|
Finance costs paid on
lease liabilities
|
|
|
(1,857)
|
|
(1,906)
|
|
(5,863)
|
|
(6,213)
|
Changes from
financing cash flows
|
|
|
|
|
|
|
|
|
Payment of lease
liabilities
|
|
|
(7,012)
|
|
(6,070)
|
|
(21,068)
|
|
(16,727)
|
Other
changes
|
|
|
|
|
|
|
|
|
Acquisition of
business
|
4
|
|
348
|
|
—
|
|
6,076
|
|
13,250
|
Interest
expense
|
20
|
|
1,857
|
|
1,906
|
|
5,863
|
|
6,213
|
New leases, net of
disposals
|
|
|
10,653
|
|
16,987
|
|
29,369
|
|
27,407
|
Balance at end of
period
|
|
$
|
167,410
|
$
|
151,060
|
$
|
167,410
|
$
|
151,060
|
Current
portion
|
|
$
|
27,645
|
$
|
23,586
|
$
|
27,645
|
$
|
23,586
|
Non-current
portion
|
|
$
|
139,765
|
$
|
127,474
|
$
|
139,765
|
$
|
127,474
|
Not included in the balance of lease liabilities are short-term
leases, leases of low-value assets and variable lease payments not
linked to an index. Variable lease payments, lease payments
associated with short-term leases and leases of low-value assets
are expensed as incurred in the condensed consolidated interim
statements of earnings.
As lessor
Operating leases
The Corporation rents equipment to
customers under rental agreements with terms of up to 5 years. The
rentals have been assessed and classified as operating leases.
Revenue is presented as equipment rental revenue and recognized
evenly over the term of the rental agreement.
Finance leases
The Corporation subleases certain equipment to customers. The
Corporation assesses and classifies its subleases as finances
leases, and therefore derecognizes the right-of-use assets relating
to the respective head leases, recognizes lease receivables equal
to the net investment in the subleases, and retains the previously
recognized lease liabilities in its capacity as lessee.
13. EMPLOYEE BENEFITS
The Corporation sponsored three pension plans: the Wajax Limited
Pension Plan (the "Employees' Plan") which, except for a small
group of employees in a defined benefit plan, is a defined
contribution plan, and two defined benefit plans: the Pension Plan
for Executive Employees of Wajax Limited (the "Executive Plan") and
the Wajax Limited Supplemental Executive Retirement Plan (the
"SERP"). Effective December 31, 2019,
the Employees' Plan was wound up, which was comprised of both
defined benefit and defined contribution components. Benefit
accruals under the plan were frozen effective as of such date and
all active members joined a new defined contribution plan sponsored
by the Corporation, the Wajax Limited Defined Contribution Pension
Plan (the "DC Plan").
During the second quarter of 2021, the Corporation settled
benefit obligations and plan assets as part of the wind-up of the
Employees' Plan effective December 31,
2019. The settlement was completed by entering into an
agreement with a third party insurance company to purchase an
annuity for participants who selected that an annuity be purchased
on their behalf, and by paying commuted values to participants who
selected a lump sum payout. The cost of the annuity purchase
totaled $4,396 and was funded with
existing plan assets. For those participants who selected a lump
sum settlement, the total lump sum paid was $2,610, which was also paid from existing plan
assets. As a result of the settlement, the Employees' Plan assets
and benefit obligation declined by $7,006 and $7,123,
respectively, resulting in a gain on settlement of $117 that the Corporation recorded in the
condensed consolidated interim statements of earnings during the
second quarter.
In addition, the settlement triggered a June 30, 2021 re-measurement of the Employees
Plan for any pre-settlement changes in assumptions, plan asset
return experience and other experience adjustments, resulting in a
re-measurement loss of $142, net of
tax, recognized in other comprehensive income during the second
quarter in the condensed consolidated interim statements of
comprehensive income.
14. DEBENTURES
Senior Unsecured Debentures - 6%, due January 15, 2025
In December 2019, the Corporation issued
$57,000 in unsecured subordinated
debentures with a term of five years due January 15, 2025. These debentures bear a fixed
interest rate of 6.00% per annum, payable semi-annually on
January 15 and July 15 of each year, commencing July 15, 2020.
The debentures will not be redeemable before January 15, 2023, except upon the occurrence of a
change of control of the Corporation in accordance with the terms
of the indenture governing the debentures. On or after January 15, 2023, but prior to January 15, 2024, the debentures are redeemable,
in whole at any time or in part from time to time at the option of
the Corporation at a price equal to 103% of the principal amount
redeemed plus accrued and unpaid interest. On or after January 15, 2024, but prior to the maturity date
of January 15, 2025, the debentures
are redeemable at a price equal to their principal amount plus
accrued and unpaid interest.
On redemption or at maturity on January
15, 2025, the Corporation has the option to repay the
debentures in either cash or freely tradable voting shares of the
Corporation.
The debentures are classified as a financial liability and are
initially recorded at fair value net of transaction costs. The
debentures are measured subsequently at amortized cost using the
effective interest method over the life of the debentures.
The following balances were outstanding:
|
September 30,
2021
|
December 31,
2020
|
Debentures
issued
|
$
|
57,000
|
$
|
57,000
|
Deferred financing
costs, net of accumulated amortization
|
|
(1,928)
|
|
(2,362)
|
Total
debentures
|
$
|
55,072
|
$
|
54,638
|
Movements in the debentures balance are as follows:
|
Three months
ended
September 30
|
Nine months ended
September 30
|
|
2021
|
2020
|
2021
|
2020
|
Balance at beginning
of period
|
$
|
54,925
|
$
|
54,356
|
$
|
54,638
|
$
|
54,115
|
Changes from
financing cash flows
|
|
|
|
|
|
|
|
|
Transaction costs
related to issuance
|
|
—
|
|
—
|
|
—
|
|
(37)
|
Other
changes
|
|
|
|
|
|
|
|
|
Amortization of
deferred financing costs
|
|
147
|
|
138
|
|
434
|
|
416
|
Balance at end of
period
|
$
|
55,072
|
$
|
54,494
|
$
|
55,072
|
$
|
54,494
|
Finance costs on the debentures were $1,014 during the quarter (2020 - $1,015) and $2,987
year to date (2020 - $2,994).
15. LONG-TERM DEBT
On January 22, 2021, the
Corporation utilized the $50,000
non-revolving acquisition term facility to finance the acquisition
of Tundra. The remaining cash portion of the purchase price was
financed with the revolving term facility.
Borrowings under the bank credit facility bear floating rates of
interest at margins over Canadian dollar bankers' acceptance
yields, U.S. dollar LIBOR rates or prime. Margins on the facility
depend on the Corporation's leverage ratio at the time of borrowing
and range between 1.5% and 3.0% for Canadian dollar bankers'
acceptances and U.S. dollar LIBOR borrowings, and 0.5% and 2.0% for
prime rate borrowings under the non-revolving and revolving term
facilities. Margins on the non-revolving acquisition term facility
range between 1.7% and 3.3% for Canadian dollar bankers'
acceptances and U.S. dollar LIBOR borrowings, and 0.7% and 2.3% for
prime rate borrowings.
Borrowing capacity under the bank credit facility is dependent
upon the level of the Corporation's inventory on hand and the
outstanding trade accounts receivable. As at September 30, 2021, borrowing capacity under the
bank credit facility was $450,000
(December 31, 2020 - $438,710), of which $322,613 (December 31,
2020 - $209,296) was
accessible to the Corporation. In addition, the bank credit
facility contains customary restrictive covenants including
limitations on the declaration of cash dividends and an interest
coverage maintenance ratio, all of which were met as at
September 30, 2021.
The following balances were outstanding:
|
September 30,
2021
|
December 31,
2020
|
Bank credit
facility
|
|
|
Non-revolving term portion
|
$
|
50,000
|
$
|
50,000
|
Non-revolving acquisition term portion
|
|
50,000
|
|
—
|
Revolving term portion
|
|
20,067
|
|
122,991
|
|
$
|
120,067
|
$
|
172,991
|
Deferred financing
costs, net of accumulated amortization
|
|
(1,383)
|
|
(1,411)
|
Total long-term
debt
|
$
|
118,684
|
$
|
171,580
|
The Corporation had $7,320
(December 31, 2020 - $6,423) letters of credit outstanding at the end
of the period. Finance costs on long-term debt amounted to
$1,709 during the quarter (2020 -
$2,268) and $5,944 year to date (2020 - $7,809). Movements in the long-term debt balance
are as follows:
|
Three months
ended
September 30
|
Nine months ended
September 30
|
|
2021
|
2020
|
2021
|
2020
|
Balance at beginning
of period
|
$
|
148,667
|
$
|
217,125
|
$
|
171,580
|
$
|
225,573
|
Changes from
financing cash flows
|
|
|
|
|
|
|
|
|
Net repayments of
borrowings
|
|
(30,129)
|
|
(18,596)
|
|
(52,924)
|
|
(27,232)
|
Transaction costs
related to borrowings
|
|
—
|
|
—
|
|
(393)
|
|
—
|
Other
changes
|
|
|
|
|
|
|
|
|
Amortization of
deferred financing costs
|
|
146
|
|
95
|
|
421
|
|
283
|
Balance at end of
period
|
$
|
118,684
|
$
|
198,624
|
$
|
118,684
|
$
|
198,624
|
16. FINANCIAL INSTRUMENTS AND FINANCIAL
RISK MANAGEMENT
The Corporation uses the following fair value hierarchy for
determining and disclosing the fair value of financial
instruments:
- Level 1 - unadjusted quoted prices in active markets for
identical assets or liabilities.
- Level 2 - other techniques for which all inputs that
have a significant effect on the recorded fair value are
observable, either directly or indirectly.
- Level 3 - techniques that use inputs that have a
significant effect on the recorded fair value that are not based on
observable market data.
The Corporation categorizes its financial instruments as
follows:
|
September 30,
2021
|
December 31,
2020
|
|
|
|
Financial assets
measured at amortized cost:
|
|
|
Cash
|
$
|
6,880
|
$
|
6,625
|
Trade and other
receivables
|
|
221,654
|
|
214,507
|
Contract assets
|
|
46,129
|
|
23,003
|
Lease receivables
|
|
9,709
|
|
7,159
|
|
|
|
|
|
Financial liabilities
measured at amortized cost:
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
289,063
|
|
231,726
|
Provisions
|
|
5,023
|
|
6,960
|
Contract
liabilities
|
|
12,515
|
|
7,064
|
Dividends
payable
|
|
5,352
|
|
5,008
|
Other
liabilities
|
|
2,893
|
|
2,365
|
Lease
liabilities
|
|
167,410
|
|
153,033
|
Debentures
|
|
55,072
|
|
54,638
|
Long-term
debt
|
|
118,684
|
|
171,580
|
|
|
|
|
|
Net derivative
financial assets (liabilities) measured at fair value:
|
|
|
|
|
Foreign exchange
forwards
|
|
1,385
|
|
(710)
|
Total return
swaps
|
|
2,322
|
|
(578)
|
Interest rate
swaps
|
|
(4,175)
|
|
(8,276)
|
The Corporation measures non-derivative financial assets and
financial liabilities at amortized cost. Derivative financial
assets/liabilities are recorded on the condensed consolidated
interim statements of financial position at fair value. Changes in
fair value are recognized in the condensed consolidated interim
statements of earnings except for changes in fair value related to
derivative financial assets/liabilities which are effectively
designated as hedging instruments which are recognized in other
comprehensive income. The Corporation's derivative financial
assets/liabilities are held with major Canadian chartered banks and
are deemed to be Level 2 financial instruments. The fair value of
long-term debt approximates its recorded value due to its floating
interest rate. The fair value of lease receivables approximates its
carrying value. The fair value of the debentures can be estimated
based on the trading price of the debentures, which takes into
account the Corporation's own credit risk. At September 30, 2021, the Corporation has estimated
the fair value of its debentures to be $58,995. The fair values of all other financial
assets and liabilities, other than lease liabilities, approximate
their recorded values due to the short-term maturities of these
instruments.
Derivative financial instruments and hedges
The
interest rate swaps are designated as effective hedges and are
measured at fair value with subsequent changes in fair value
recorded in other comprehensive income. Amounts in accumulated
other comprehensive income are reclassified to net earnings in the
periods when the hedged item affects profit or loss. The
Corporation recognized a gain of $513
during the quarter (2020 - gain of $246) and a gain of $2,998 year to date (2020 - loss of $4,561), net of tax in other comprehensive income
associated with its interest rate swaps.
The Corporation's interest rate swaps outstanding are summarized
as follows:
|
Notional
Amount
|
Weighted
Average
Interest Rate
|
Maturity
|
As at September 30,
2021:
|
$
|
150,000
|
2.12%
|
November
2024
|
As at December 31,
2020:
|
$
|
150,000
|
2.12%
|
November
2024
|
As at September 30,
2020:
|
$
|
150,000
|
2.12%
|
November
2024
|
The Corporation enters into short-term foreign exchange forwards
to hedge the exchange risk associated with the cost of certain
inbound inventory and certain foreign currency-denominated sales to
customers along with the associated receivables as part of its
normal course of business. Foreign exchange forwards are initially
recognized on the date the derivative contract is entered into and
are subsequently re-measured at their fair values. The method of
recognizing the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument. In a cash flow
hedging relationship, the effective portion of the change in the
fair value of the hedging derivative, net of taxes, is recognized
in other comprehensive income while the ineffective portion is
recognized within net earnings. Amounts in accumulated other
comprehensive income are reclassified to net earnings in the
periods when the hedged item affects profit or loss. The
Corporation recognized a loss of $605
in the quarter (2020 - gain of $220)
and a loss of $252 year to date (2020
- gain of $133) associated with its
foreign exchange forwards in the condensed consolidated interim
statements of earnings, and a gain of $1,038 in the quarter (2020 - loss of
$364) and a gain of $1,715 year to date (2020 - loss of $76), net of tax in other comprehensive
income.
The Corporation's contracts to buy and sell foreign currencies
are summarized as follows:
September 30,
2021
|
|
Notional
Amount
|
Average
Exchange
Rate
|
Maturity
|
Purchase
contracts
|
US$
|
98,391
|
1.2477
|
October 2021 to
January 2024
|
|
€
|
498
|
1.4994
|
October 2021 to
December 2022
|
Sales
contracts
|
US$
|
34,119
|
1.2515
|
October 2021 to April
2023
|
|
€
|
1,023
|
1.5101
|
October 2021 to
December 2022
|
December 31,
2020
|
|
Notional
Amount
|
Average
Exchange
Rate
|
Maturity
|
Purchase
contracts
|
US$
|
45,912
|
1.3236
|
January 2021 to
December 2022
|
|
€
|
102
|
1.5790
|
October 2021 to
December 2022
|
Sales
contracts
|
US$
|
32,187
|
1.3233
|
January 2021 to
December 2022
|
|
€
|
939
|
1.5591
|
January 2021 to
December 2022
|
September 30,
2020
|
|
Notional
Amount
|
Average
Exchange
Rate
|
Maturity
|
Purchase
contracts
|
US$
|
41,295
|
1.3617
|
October 2020 to
August 2021
|
|
€
|
29
|
1.5685
|
October
2020
|
Sales
contracts
|
US$
|
28,978
|
1.3449
|
October 2020 to June
2022
|
|
€
|
981
|
1.5565
|
November 2020 to
September 2021
|
The Corporation has certain total return swaps to hedge the
exposure associated with increases in its share price on its
outstanding restricted share units ("RSUs"). The Corporation does
not apply hedge accounting to these relationships and as such,
gains and losses arising from marking these derivatives to market
are recognized in earnings in the period in which they arise. As at
September 30, 2021, the Corporation's
total return swaps cover 390,000 of the Corporation's underlying
common shares (December 31, 2020 -
387,000), and expire between March
2022 and March 2024. During
the year to date, the Corporation settled a total return swap
contract for 114,000 shares (2020 - 121,000 shares), resulting in a
cash payout of $613 (2020 -
$1,396). The Corporation recognized a
loss of $420 in the quarter (2020 -
gain of $1,366) and a gain of
$2,287 year to date (2020 - loss of
$1,032) associated with its total
return swaps.
Derivative financial assets consist of:
|
September 30,
2021
|
December 31,
2020
|
Interest rate
swaps
|
$
|
127
|
$
|
—
|
Foreign exchange
forwards
|
|
2,290
|
|
1,652
|
Total return
swaps
|
|
2,322
|
|
456
|
Total derivative
financial assets
|
$
|
4,739
|
$
|
2,108
|
|
|
|
|
|
Current
portion
|
$
|
2,964
|
$
|
1,597
|
Non-current
portion
|
$
|
1,775
|
$
|
511
|
Derivative financial liabilities consist of:
|
September 30,
2021
|
December 31,
2020
|
Interest rate
swaps
|
$
|
4,302
|
$
|
8,276
|
Foreign exchange
forwards
|
|
905
|
|
2,362
|
Total return
swaps
|
|
—
|
|
1,034
|
Total derivative
financial liabilities
|
$
|
5,207
|
$
|
11,672
|
|
|
|
|
|
Current
portion
|
$
|
740
|
$
|
3,387
|
Non-current
portion
|
$
|
4,467
|
$
|
8,285
|
Movements in the net derivative financial liabilities balance
are as follows:
|
Three months
ended
September 30
|
Nine months ended
September 30
|
|
2021
|
2020
|
2021
|
2020
|
Opening net
derivative financial liabilities
|
$
|
1,566
|
$
|
13,778
|
$
|
9,564
|
$
|
6,507
|
Loss (gain)
recognized in net earnings
|
|
1,025
|
|
(1,586)
|
|
(2,035)
|
|
899
|
(Gain) loss
recognized in other comprehensive income - before tax
|
|
(2,123)
|
|
161
|
|
(6,448)
|
|
6,343
|
Cash paid on
settlement of total return swaps
|
|
—
|
|
—
|
|
(613)
|
|
(1,396)
|
Ending net derivative
financial liabilities
|
$
|
468
|
$
|
12,353
|
$
|
468
|
$
|
12,353
|
The balance in accumulated other comprehensive loss relates to
changes in the value of the Corporation's various interest rate
swaps and foreign exchange forwards where hedge accounting is
applied. These accumulated amounts will be continuously released to
the condensed consolidated interim statements of earnings within
finance costs and gross profit, respectively.
During the periods presented and cumulatively to date, changes
in counterparty credit risk have not significantly contributed to
the overall changes in the fair value of these derivative
instruments.
17. SHARE CAPITAL AND EARNINGS PER
SHARE
The Corporation is authorized to issue an unlimited number of no
par value common shares and an unlimited number of no par value
preferred shares. Each common share entitles the holder of record
to one vote at all meetings of shareholders. All issued common
shares are fully paid. There were no preferred shares outstanding
as at September 30, 2021
(December 31, 2020 - nil). Each
common share represents an equal beneficial interest in any
distributions of the Corporation and in the net assets of the
Corporation in the event of its termination or winding-up.
|
Number of
Common
Shares
|
Amount
|
Issued and
outstanding, December 31, 2020
|
20,167,703
|
$
|
182,482
|
Common shares issued
for acquisition of business
|
1,357,142
|
|
25,256
|
Common shares issued
to settle share-based compensation plans
|
6,583
|
|
67
|
Issued and
outstanding, September 30, 2021
|
21,531,428
|
$
|
207,805
|
Shares held in trust,
December 31, 2020
|
(134,084)
|
|
(1,208)
|
Released for
settlement of certain share-based compensation plans
|
11,979
|
|
108
|
Shares held in trust,
September 30, 2021
|
(122,105)
|
$
|
(1,100)
|
Issued and
outstanding, net of shares held in trust, September 30,
2021
|
21,409,323
|
$
|
206,705
|
|
Number of
Common
Shares
|
Amount
|
Issued and
outstanding, December 31, 2019 and September 30, 2020
|
20,167,703
|
$
|
182,482
|
Shares held in trust,
December 31, 2019
|
(156,113)
|
|
(1,407)
|
Released for
settlement of certain share-based compensation plans
|
22,029
|
|
199
|
Shares held in trust,
September 30, 2020
|
(134,084)
|
$
|
(1,208)
|
Issued and
outstanding, net of shares held in trust, September 30,
2020
|
20,033,619
|
$
|
181,274
|
Dividends declared
During the three months ended September
30, 2021, the Corporation declared cash dividends of
$0.25 per share or $5,352 (2020 - dividends of $0.25 per share or $5,008). During the nine months ended
September 30, 2021, the Corporation
declared cash dividends of $0.75 per
share or $16,056 (2020 - dividends of
$0.75 per share or $15,024). As at September
30, 2021, the Corporation had $5,352 (December 31,
2020 - $5,008) dividends
outstanding which were paid on October 5, 2021.
Earnings per share
The following table sets forth the computation of basic and
diluted earnings per share:
|
Three months
ended
September 30
|
Nine months ended
September 30
|
|
2021
|
2020
|
2021
|
2020
|
Numerator for basic
and diluted earnings per share:
|
|
|
|
|
– net
earnings
|
$
|
14,657
|
$
|
6,671
|
$
|
45,278
|
$
|
20,937
|
Denominator for basic
earnings per share:
|
|
|
|
|
|
|
|
|
– weighted average
shares, net of shares held in trust
|
|
21,409,323
|
|
20,033,619
|
|
21,300,718
|
|
20,027,910
|
Denominator for
diluted earnings per share:
|
|
|
|
|
|
|
|
|
– weighted average
shares, net of shares held in trust
|
|
21,409,323
|
|
20,033,619
|
|
21,300,718
|
|
20,027,910
|
– effect of dilutive
share rights
|
|
665,847
|
|
479,712
|
|
636,355
|
|
431,951
|
Denominator for
diluted earnings per share
|
|
22,075,170
|
|
20,513,331
|
|
21,937,073
|
|
20,459,861
|
Basic earnings per
share
|
$
|
0.68
|
$
|
0.33
|
$
|
2.13
|
$
|
1.05
|
Diluted earnings per
share
|
$
|
0.66
|
$
|
0.33
|
$
|
2.06
|
$
|
1.02
|
For the quarter, the calculation above excludes nil (2020 -
74,374) anti-dilutive share rights. For the year to date, the
calculation above excludes 6,594 anti-dilutive share rights (2020 –
126,366).
18. SHARE-BASED COMPENSATION PLANS
The Corporation has four share-based compensation plans: the
Wajax Share Ownership Plan (the "SOP"), the Directors' Deferred
Share Unit Plan (the "DDSUP"), the Mid-Term Incentive Plan for
Senior Executives (the "MTIP") and the Deferred Share Unit Plan
(the "DSUP"). The following table provides the share-based
compensation expense for awards under all plans:
|
Three months
ended
September 30
|
Nine months ended
September 30
|
|
2021
|
2020
|
2021
|
2020
|
Treasury share
rights plans
|
|
|
|
|
SOP
equity-settled
|
$
|
24
|
$
|
24
|
$
|
71
|
$
|
65
|
DDSUP
equity-settled
|
|
185
|
|
123
|
|
496
|
|
397
|
Total treasury share
rights plans expense
|
$
|
209
|
$
|
147
|
$
|
567
|
$
|
462
|
Market-purchased
share rights plans
|
|
|
|
|
|
|
|
MTIP
equity-settled
|
$
|
403
|
$
|
425
|
$
|
1,131
|
$
|
1,218
|
DSUP
equity-settled
|
|
6
|
|
12
|
|
22
|
|
39
|
Total
market-purchased share rights plans expense
|
$
|
409
|
$
|
437
|
$
|
1,153
|
$
|
1,257
|
Cash-settled
rights plans
|
|
|
|
|
|
|
|
MTIP
cash-settled
|
$
|
955
|
$
|
909
|
$
|
3,783
|
$
|
999
|
DSUP
cash-settled
|
|
3
|
|
34
|
|
72
|
|
(16)
|
Total cash-settled
rights plans expense
|
$
|
958
|
$
|
943
|
$
|
3,855
|
$
|
983
|
Total share-based
compensation expense
|
$
|
1,576
|
$
|
1,527
|
$
|
5,575
|
$
|
2,702
|
a) Treasury share rights plans
Under the SOP and the DDSUP, rights are issued to the
participants which are settled by issuing Wajax Corporation shares
for no cash consideration. Rights under the SOP vest over three
years, while rights under the DDSUP vest immediately. Vested rights
are settled when the participant is no longer employed by the
Corporation or one of its subsidiary entities or no longer sits on
its Board. Whenever dividends are paid on the Corporation's shares,
additional rights (dividend equivalents) with a value equal to the
dividends are credited to the participants' accounts.
The following rights under these plans are outstanding:
|
Number of
rights
|
Fair value at time of
grant
|
Outstanding at
December 31, 2020
|
482,224
|
$
|
6,626
|
Grants – new grants
|
22,777
|
496
|
– dividend equivalents
|
18,381
|
—
|
Settlements
|
(6,583)
|
(67)
|
Outstanding at
September 30, 2021
|
516,799
|
$
|
7,055
|
At September 30, 2021, 486,931
share rights were vested (December 31,
2020 - 453,466 share rights were vested).
The outstanding aggregate number of shares issuable to satisfy
entitlements under these plans is as follows:
|
Number of
Shares
|
Approved by
shareholders
|
1,300,000
|
Exercised to
date
|
(359,394)
|
Rights
outstanding
|
(516,799)
|
Available for future
grants at September 30, 2021
|
423,807
|
b) Market-purchased share rights plans
The MTIP plan consists of cash-settled restricted share units
("RSUs") and equity-settled performance share units ("PSUs"), and
the equity-settled DSUP plan consists of deferred share units
("DSUs").
Market-purchased share rights plans consist of PSUs under the
MTIP plan and DSUs, which vest over three years and are settled in
common shares of the Corporation on a one-for-one basis. DSUs are
only subject to time-vesting, whereas PSUs are also subject to
performance vesting. PSUs are comprised of two components: return
on net assets ("RONA") PSUs and total shareholder return ("TSR")
PSUs as described below:
- RONA PSUs vest dependent upon the attainment of a target level
of return on net assets. Such performance vesting criteria results
in a performance vesting factor that ranges from 0% to 150%
depending on the level of RONA attained.
- TSR PSUs vest dependent upon the attainment of a TSR market
condition. Such performance vesting criteria result in a
performance vesting factor that ranges from 0% to 200% depending on
the Corporation's TSR relative to a pre-selected group of
peers.
These plans are settled through shares purchased on the open
market by the employee benefit plan trust, subject to the
attainment of their vesting conditions. PSUs are settled at the end
of the vesting period, and the number of shares remitted to the
participant upon settlement is equal to the number of PSUs awarded
multiplied by the performance vesting factor less shares withheld
to satisfy the participant's withholding tax requirement. DSUs are
settled when the participant is no longer employed by the
Corporation or one of its subsidiary entities. Whenever dividends
are paid on the Corporation's shares, additional rights with a
value equal to the dividends are credited to the participants'
accounts with the same vesting conditions as the original PSUs and
DSUs.
The following rights under these plans are outstanding:
|
Number of
rights
|
Fair value at time of
grant
|
Outstanding at
December 31, 2020
|
289,570
|
$
|
5,434
|
Grants – new grants
|
74,959
|
1,874
|
– dividend equivalents
|
11,264
|
—
|
Forfeitures
|
(52,497)
|
(1,043)
|
Settlements
|
(25,539)
|
(771)
|
Outstanding at
September 30, 2021
|
297,757
|
$
|
5,494
|
At September 30, 2021, 25,811
outstanding rights were vested (December 31,
2020 - 21,004 rights were vested). All vested rights are
DSUs.
c) Cash-settled rights plans
Cash-settled rights plans consist of MTIP RSUs and cash-settled
DSUs. Compensation expense varies with the price of the
Corporation's shares and is recognized over the three year vesting
period. RSUs are settled at the end of the vesting period, whereas
DSUs are settled when the participant is no longer employed by the
Corporation or one of its subsidiary entities. Whenever dividends
are paid on the Corporation's shares, additional rights with a
value equal to the dividends are credited to the participants'
accounts with the same vesting conditions as the original rights.
The value of the payout is equal to the number of rights awarded
including earned dividend equivalents, multiplied by the volume
weighted average share price at the time of vesting. At
September 30, 2021, the carrying
amount of the liabilities for these plans was $5,391 (December 31,
2020 – $3,863).
The following rights under these plans are outstanding:
|
Number of
rights
|
Outstanding at
December 31, 2020
|
465,452
|
Grants – new grants
|
174,652
|
– dividend equivalents
|
18,895
|
Forfeitures
|
(38,654)
|
Settlements
|
(112,096)
|
Outstanding at
September 30, 2021
|
508,249
|
At September 30, 2021, 10,574
outstanding rights were vested (December 31,
2020 - 10,182 rights were vested).
19. REVENUE
Disaggregation of revenue
In the following table, revenue is disaggregated by revenue
type:
|
Three months ended
September 30
|
Nine months ended
September 30
|
|
2021
|
2020
|
2021
|
2020
|
Equipment
sales
|
$
|
104,710
|
$
|
106,180
|
$
|
364,451
|
$
|
326,418
|
Product
support
|
114,267
|
100,938
|
334,831
|
309,840
|
Industrial
parts
|
111,061
|
83,772
|
329,406
|
257,059
|
ERS
|
62,101
|
41,676
|
179,821
|
123,774
|
Revenue from
contracts with customers
|
$
|
392,139
|
$
|
332,566
|
$
|
1,208,509
|
$
|
1,017,091
|
Equipment
rental
|
9,166
|
8,054
|
25,995
|
24,538
|
Total
|
$
|
401,305
|
$
|
340,620
|
$
|
1,234,504
|
$
|
1,041,629
|
The Corporation has included $5,052 during the quarter (2020 - $4,730) and $12,652
year to date (2020 - $12,363) in
equipment sales related to short-term rental contracts that are
expected to convert to equipment sales within a six to twelve month
period.
20. FINANCE COSTS
Finance costs are comprised of the following:
|
|
Three months
ended
September 30
|
Nine months ended
September 30
|
|
Note
|
2021
|
2020
|
2021
|
2020
|
Finance costs on
long-term debt
|
15
|
$
|
1,709
|
$
|
2,268
|
$
|
5,944
|
$
|
7,809
|
Finance costs on
debentures
|
14
|
1,014
|
1,015
|
2,987
|
2,994
|
Interest expense on
lease liabilities
|
12
|
1,857
|
1,906
|
5,863
|
6,213
|
Interest income on
lease receivables
|
|
(56)
|
(51)
|
(167)
|
(109)
|
Finance
costs
|
|
$
|
4,524
|
$
|
5,138
|
$
|
14,627
|
$
|
16,907
|
The Corporation capitalized nil during the quarter (2020 - nil)
and $153 year to date (2020 - nil) of
borrowing costs directly attributable to the construction of
qualifying assets.
21. INCOME TAX EXPENSE
Income tax expense comprises current and deferred tax as
follows:
For the nine months
ended September 30
|
2021
|
2020
|
Current income tax
expense
|
$
|
14,163
|
$
|
8,505
|
Deferred income tax
expense (recovery)
|
2,902
|
(603)
|
Income tax
expense
|
$
|
17,065
|
$
|
7,902
|
The calculation of current tax is based on a combined federal
and provincial statutory income tax rate of 26.2% (2020 – 26.5%).
Deferred tax assets and liabilities are measured at tax rates that
are expected to apply to the period when the asset is realized or
the liability is settled. Deferred tax assets and liabilities have
been measured using an expected average combined statutory income
tax rate of 26.2% based on the tax rates in years when the
temporary differences are expected to reverse.
The reconciliation of income taxes at Canadian statutory rates
to the reported income tax expense is as follows:
For the nine months
ended September 30
|
2021
|
|
2020
|
|
Combined statutory
income tax rate
|
26.2
|
%
|
26.5
|
%
|
Expected income tax
expense at statutory rates
|
$
|
16,334
|
|
$
|
7,642
|
|
Non-deductible
expenses
|
395
|
|
399
|
|
Non-taxable portion
of gain on real estate disposal
|
(1,205)
|
|
(212)
|
|
Other
|
1,541
|
|
73
|
|
Income tax
expense
|
$
|
17,065
|
|
$
|
7,902
|
|
22. CHANGES IN NON-CASH OPERATING WORKING
CAPITAL
The net change in non-cash operating working capital comprises
the following:
|
Three months
ended
September 30
|
Nine months ended
September 30
|
|
2021
|
2020
|
2021
|
2020
|
Trade and other
receivables
|
$
|
(11,149)
|
$
|
(82)
|
$
|
10,360
|
$
|
36,219
|
Contract
assets
|
(5,561)
|
(2,984)
|
(15,175)
|
2,530
|
Inventory
|
5,577
|
29,626
|
4,264
|
26,181
|
Deposits on
inventory
|
2,589
|
(2,040)
|
32,757
|
(8,470)
|
Prepaid
expenses
|
(1,062)
|
(416)
|
(2,713)
|
(679)
|
Accounts payable and
accrued liabilities
|
18,049
|
(13,590)
|
36,661
|
(53,774)
|
Provisions
|
(680)
|
6,327
|
(1,937)
|
5,664
|
Contract
liabilities
|
1,742
|
127
|
5,231
|
(2,025)
|
Total
|
$
|
9,505
|
$
|
16,968
|
$
|
69,448
|
$
|
5,646
|
23. GOVERNMENT ASSISTANCE
Canada Emergency Wage
Subsidy
On April 11, 2020, the Government
of Canada passed the Canada Emergency Wage Subsidy ("CEWS") to
support employers facing financial hardship as measured by certain
revenue declines as a result of the COVID-19 pandemic. The CEWS
currently provides eligible businesses with a reimbursement of
compensation expense for the period from March 15, 2020 to September 25, 2021 of up to 75% of eligible
employees' employment remuneration, subject to certain criteria.
The Corporation applied for the CEWS for the period from
March 15, 2020 to June 5, 2021 to the extent it met the
requirements to receive the subsidy. In accordance with IAS 20
Accounting for Government Grants and Disclosure of Government
Assistance, during the third quarter, the Corporation
recognized nil (2020 - $5,425) as a
reimbursement of compensation expense, with nil (2020 -
$2,648) and nil (2020 - $2,777) allocated to cost of sales and selling
and administrative expenses, respectively, in proportion to
personnel costs recorded in those areas. During the year to
date, the Corporation recognized $8,448 (2020 - $20,933) as a reimbursement of compensation
expense, with $3,723 (2020 -
$9,731) and $4,725 (2020 - $11,202) allocated to cost of sales and selling
and administrative expenses, respectively, in proportion to
personnel costs recorded in those areas. As at September 30, 2021, the entire $8,448 current year subsidy has been received
from the Government of Canada.
The Government of Canada
announced that it would be extending the CEWS program until
October 23, 2021. The Corporation
will continue to monitor its eligibility for the subsidy.
24. COMPARATIVE INFORMATION
Certain comparative information has been reclassified to conform
to the current year's presentation.
25. SUBSEQUENT EVENTS
On November 1, 2021, the Corporation declared a fourth
quarter 2021 dividend of $0.25 per
share or $5,352.
SOURCE Wajax Corporation